THE ARTHUR YOUNG ACCOUNTING COLLECTION Graduate School of Business Administration Library of the University of California Los Angeles fV,i 3 .r^o : Unified Accounting Methods for Industrials BY CLINTON E. WOODS Industrial Engineer ; Author of " Woods' Reports," ^'Practical Cost Accounting," "Organizing a Factory," etc. (Third Printing) NEW YORK THE RONALD PRESS COMPANY 1919 Copyright, 1917, by The Ronald Press Company WUllam G. Hevrttt Press, BrooMjm. PrinUrt J. F. Taplcy Co.. New York. Binders Bus. Admin, Libr:::ry HF M5m Dedicated to My Fellow- Workers as an Instrument to Help Them Establish the Profession of Industrial Engineering Somewhere, somehow, sometime, in the universal make- up of things, a relationship will be found to exist between all things that function toward a common end. Activities using the same elements must in some way be dominated by a common principle. If this can be discovered it will serve as a clue to guide the investigator to his goal or enable him to return to the beginning of things for a fresh start if analytical ramifications have led him too far afield. It is with this thought firmly fixed in his mind that the writer has undertaken this work. Its subject matter is not new, but it is treated in a new way to reveal more clearly this condition of relationship. The scope of this work is limited to industrial or manu- facturing activities, although the principles herein set forth are susceptible of a much broader application. It should be borne in mind that this is a day not only of specialists, but also of specialities, and that the cunning of the inventor's mind has lost no opportunity to lighten the burden, lessen the cost, and make more accurate the work of the office as well as that of the factory. Any method of accounting proposed at this time must therefore take full cognizance of this fact if it is to be commensurate with modern progress. The reader should recognize the fact that it is not to be supposed that any and all industries offer the same oppor- tunities for improvement as those cited in Chapter I of this work, as in nearly all instances the examples used are those where exceptional opportunity existed and was taken advantage of, thereby becoming of educational value as a yJ preface foundation for research work on the part of industrial executives who care to study them. It is to be noted that the forms presented, while selected from those in actual use, are for illustrative purposes, and there is no hard and fast rule preventing their modification or change either in captions, size, or general arrangement to meet any special requirements. It has been deemed best to present the balance sheet in the first part of the book. This means the giving first of that which would ordinarily be given last; but it is sometimes well to picture a house before building it, and this would seem to be one of those times. The author realizes the impossibility of writing a book of this character without leaving many questions un- answered, and that it must necessarily be somewhat specific in its subject matter. It has, however, been written for the benefit of three classes of individuals, the executive, the engineer, and the accountant; but in the main, the present work is one of accounting and as such is submitted to his fellow-workers in the industrial world with but one thought and one wish, and that is, that they may derive as much profit from the application of its principles and precepts as the author has had pleasure in formulating them. In conclusion the author wishes to express his high appreciation of the ef^cient editorial assistance given by Dr. Carroll W. Doten, of the Massachusetts Institute of Technology, and by the editorial staff of The Ronald Press Company — assistance which has added much to the clear- ness and general value of the book. Clinton E. Woods Bri^dgeport, Conn., January 2, 1917. CONTENTS Chapter Page I The Development, Elements, and Results OF Industrial or Efficiency Engineer- ing I A New Profession Conditions Which Make Industrial Engineering Neces- sary Phases of Industrial Engineering Principles of Industrial Engineering Distribution of Expense Unified Accounting Unified Output Function of a Sales Department Results of a Unified Output Stabilizing Production Standardizing Output Well-Balanced Equipment Standardization of Labor Adjustment of Labor and Equipment Results of Scientific Management Broader Applications of Scientific Management II Analyzing an Industrial Manager's Monthly Balance Sheet ... 25 The Work of a Manager Purposes of Unified Methods of Accounting The Monthly Balance Sheet Analyzing the Balance Sheet — From the Standpoint of the Financier Analyzing the Balance Sheet — From the Standpoint of the Executive Analyzing the Balance Sheet — From the Standpoint of the Manufacturer Availability and Value of Unified Balance Sheet Manager's Daily Report vii viii CONTENTS Chapter Page III Purchasing and Receiving .... 41 Work of the Purchasing Department Purchase Specifications Purchase Requisition Purchase Order Material Receipt and Notice Filing Purchase Requisitions Filing Purchase Orders Filing Material Receipt and Notice Special Instructions for Handling Invoices IV General Stores 57 Orders Classification of Orders (A) Contract or Sales Orders (B) Manufacturing Orders (C) Production Orders (D) Prorating Orders (E) Betterment Orders (F) Repair Orders (G) Stores Orders Stores-Keeping Stores Requirements as to Stores Routine of Stores-Keeping General Stores Keeper Stores Recorder Bureau of Censorship of Materials Control of General Stores General Stores Record Classification of General Stores 1. Office Materials — Classification 2. Factory Materials — Classification Classification of General Stores — For Stores-Indexing The Issuing of Material from Stores General Stores Requisitions Stores Credit Memorandum CONTENTS ix Chapter Page V Component and Finished Stores . . 91 Nature of Component and Finished Stores Component Stores Component Stores Record Controlling Account for Component Stores Finished Stores Record VI Stores — Special Features .... 101 Assembly Requisition Production Order Distribution of Material Assembly Production Order Material Distribution Extensions Daily Report of Stores Balance Objects of Stores-Keeping Stores Keeper's Order Goods Returned Memorandum Accounting for Goods Returned VII Preparation for the Handling of Produc- tion 113 General Considerations Analysis of Production Handling Utilizing Plant Capacity Production and the Sales Department Schedule of Production System of Numbering Piece Key Card Part Key Card Unit Key Card Preparation and Care of Cards Uses to Which Key Cards Are Applied Drawing and Tracing Card Pattern Record Card Pattern Location Card VIII Analyzing and Grouping Machine Tool Equipment 133 Machine Study Card Tool and Fixture Key Cards jj CONTENTS Chapter Page Tool Key Card Tool Set-up Key Card Fixture and Die Key Card Operation Studies Operation Study Card Making the Operation Study Motion Study Card Operation Key Card Rate Memo IX Schedules I49 Purpose and Scope of Schedules Manufacturing Order — Master Schedule Production Schedule Purchase Order Schedule Scheduling Labor Scheduling Financial Requirements Importance of Schedules Graphic Charts X Converting Labor, Material, and Expense INTO Finished Product .... 165 Classification of Orders Production Orders Tracing Tag Issuing Material Requisitions Production Tickets and Daily Time Slips Daily Defective Repairs Time Ticket Daily Waiting Time Ticket Prorating Orders Daily Prorating Order Time Ticket Daily Non-productive Labor Ticket Plant Betterments and Repairs Betterment Orders Daily Betterment Time Ticket Plant Repairs Small Repairs Daily Repair Time Ticket ^ Importance of Accuracy and Promptness Cost of Production CONTENTS Chapter Supplementary Tag Rejected for Scrap Tag Rejected for Defective Repairs Tag Symbolical Control Chart Planning Board XI Employment and Handling of Labor Organization of Employment Department Application for Employment Card Letter Application for Employment Reference Inquiry Letter Requisition for Help Card Employee's Rate Card Quitting Card Employees Dismissed and Resigned Pay Period Time Card Pay Check Time Sheet (First Form) Distribution of Labor Costs Time Sheet (Second Form) Time Card (Second Form) XI Page 197 XII Distributions ...... Organization Organization Chart Factory Overhead Sheet for Distributions Labor Materials Expense Redistribution Record of Production, Betterment, and Repair Orders Production Cost Card Sales Analysis Sheet 219 XIII Commercial or Office Accounting The Function of Commercial Accounting General Stores under the Voucher System Purchase Voucher Charge Vouchers Voucher Record 241 xii CONTENTS Chapter Page Incoming Cash Sheet Check Record Petty Cash Record and Voucher Journal Register Journal Voucher General Ledger Commercial Expense Distribution Sheet General Commercial Expense Selling Expense Commercial or Office Expense Credits Analysis of Overhead Accounts Payable — Personal XIV Controlling Accounts — Nature; Asset Accounts 265 Purpose of Controlling Accounts Chart of Controlling Accounts Classification of Asset Accounts Classification of Liability Accounts Classification of Profit and Loss Accounts Assets — A. Account Assets — B. Inventory Assets — C. Investments XV Controlling Accounts — Liability and Profit and Loss Accounts . . . 299 Liabilities— D. Current Liabilities — E. Reserves Liabilities — F. Capital, Bonds, and Mortgages Profit and .Loss — G. Revenues Profit and Loss — H. Costs Profit and Loss — J. Expenses K. Profit and Loss XVI Taking THE Inventory 317 Preliminary Steps Formal Announcement Organizing the Force Classification of Assets Pricing the Inventory CONTENTS xiii Chapter Page Inventory Tag Disposition of Tags Equipment Record XVII The Work of the Systematizer . . 335 Relation between Standardized Accounting and Systematizing Special Features of the Systcmatizer's Work Office Appliances FORMS Page Financial Statements and Reports . . .341 1. Industrial Manager's Monthly Balance Sheet 2. General Manager's Daily Report Purchasing and Receiving 351 3. Purchase Requisition 4. Purchase Order 5. Purchase Order Tickler Card 6. Material Receipt and Notice 7. Purchase Order Numbers 8. Claim Voucher General Stores 357 9. General Stores Record 10. General Stores Requisition 11. Stores Credit Memorandum 12. Shop Stores Requisition Component and Finished Stores .... 361 13. Component Stores Record 14. Finished Stores Record XIV CONTENTS Page Stores — Special Forms 365 15. Assembly Requisition 16. Production Order Distribution of Material 17. Assembly Production Order Material Distribution 18. Stores Clerk's Order 19. Goods Returned to Us Memorandum Preparation for Production 371 20. Piece Key Card 21. Part Key Card 22. Unit Key Card 23. Drawing and Tracing Card 24. Pattern Record Card 25. Pattern Location Card Machine and Tool Studies 377 26. Machine Study Card 27. Tool Key Card 28. Tool Set-up Key Card 29. Fixture and Die Key Card 30. Operation Study Card 31. Motion Study Card 32. Motion Study of Operations 33. Operation Key Card 34. Rate Memo Schedules and Charts 387 35. Manufacturing Order 36. Production Schedule 37. Purchase Order Schedule 38. Graphic Chart — Component Schedule 39. Graphic Chart — Unit Schedule Forms Relating to Production .... 391 40. Production Order 41. Betterment Order 42. Repair Order 43. Tracing Tag 44. Day-Work Production Ticket, including Time on Day- Work Ticket 45. Piece-Work Production Ticket, including Time on Piece-Work Ticket CONTENTS XV Page 46. Premium Production Ticket, including Time on Premium Ticket 47. Daily Day-Work Production Time Slip 48. Daily Piece- Work Production Time Slip 49. Daily Premium Production Time Slip 50. Daily Defective Repairs Time Ticket 51. Daily Waiting Time Ticket 52. Daily Betterment Time Ticket 53. Daily Repair Time Ticket 54. Daily Prorating Order Time Ticket 55. Daily Non-productive Labor Time Ticket 56. Supplementary Tag 57. Rejected for Scrap Tag 58. Rejected for Defective Repairs Tag 59. Order Control Chart 60. Order Control or Planning Board Forms Relating to Labor 405 61. Application for Employment 62. Letter Application for Employment 63. Reference Inquiry Letter 64. Requisition for Help 65. Employee's Rate Card, including Absent Record 66. Introduction Card 67. Change in Rate Card 68. Change of Department Card 69. Report of Absentees 70. Quitting Card, including Record of Employee 71. Monthly Record of Employees Dismissed or Re- signed 72. Pay Check and Time or Clock Card 72>. Time Sheet (First Method) 74. Time Sheet (Second Method) 75. Pay Check and Time or Clock Card (Second Method) Organization Chart; Distribution and Analysis Sheets 421 76. Organization Chart 77. Factory Overhead Distribution Sheet xvi CONTENTS Page 78. Record of Production, Betterment, and Repair Orders 79. Production Cost Card 80. Sales Analysis Sheet Commercial Accounting 431 81. Purchase Voucher 82. Voucher Tickler 83. Charge Voucher 84. Voucher Record 85. Incoming Cash Sheet 86. Check Record 87. Petty Cash Voucher 88. Petty Cash Disbursements Sheet 89. Journal Register 90. Journal Voucher 91. Commercial Expense Distribution Sheet Chart of Controlling Accounts .... 443 92. Chart of Controlling Accounts Inventory Records ....... 445 93. Inventory Tag 94. Equipment Record Form 95. Stores Ledger 449 Unified Accounting Methods for Industrials CHAPTER I THE DEVELOPMENT, ELEMENTS, AND RE- SULTS OF INDUSTRIAL OR EFFICIENCY ENGINEERING A statement of facts in connection with the development of accounting and industrial engineering, giving specific instances of the improved conditions brought about in various industries by the application, in their different phases, of one or both of these. CHAPTER I THE DEVELOPMENT, ELEMENTS, AND RE- SULTS OF INDUSTRIAL OR EFFICIENCY ENGINEERING A New Profession During the last few years a new profession has been slowly developing in the industrial world, sometimes called industrial engineering, sometimes efficiency engineering, or again production engineering. While this in time promises to be one of the most important of the engineering pro- fessions, up to the present moment it has not received the recognition required to clothe it with the dignity of a collegiate degree as in other branches of engineering, and its importance is but dimly recognized by manufacturers in general, owing to the fact that the work of this new profession has been done under many different names, and by a wide diversity of individual effort. To trace the development of industrial engineering in detail would mean the writing of several books. Therefore, in the present instance, the primary purpose will be an effort to explain its scope, some of the results obtained by its application to industrials, the necessity that exists for such special service as the industrial engineer has to offer, and in so far as possible to establish certain standards for this new profession. Conditions Which Make Industrial Engineering Necessary The average manufacturer of today might be called the most magnificent gambler the world has ever known. He 3 4 UNIFIED ACCOUNTING FOR INDUSTRIALS is a buyer, a producer, a seller, and a financier ; and in each of these phases of his business he takes a hundred chances where his business brother, the banker, on the one hand, takes none, and the merchant, on the other, perhaps ten. This relative business worth is reflected in every banker's attitude toward an industrial, for, in making it a loan, he will almost invariably ignore fixed assets or per- manent investment and loan on quick assets only to the extent of about fifty cents on the dollar; whereas he will loan a merchant sometimes as high as 70% of his entire inventory and will take the securities of other banks at par. It might almost be said that banking, the world over, is done today under a unified code of standards, insuring not only safety to the banker and to the depositor, but an earning on investments as well. Merchandising is also con- ducted under a unified code of standards that minimizes the risk ; yet, there are somewhere near 400,000 manufacturing concerns in this country today whose methods of handling the same industrial problems are as diversified as are the things they make and the men who make them, and who, for lack of unified standards to work under, are jeopardiz- ing the interests of both labor and capital — and jeopardizing them to such an extent that it is little wonder that labor forms unions to protect itself, and that capital will buy average industrial stocks or bonds only at a big discount; in other words, on a speculative or gambling basis. In saving that a manufacturer is taking considerable risks, it is not meant that he does so from choice or that his chance-taking is directly connected with money trans- actions, but rather that it is due to the nature of the things in which he is obliged to invest his money. For instance, he gambles with inventions, the develop- ment of which is always a pure experiment. Many fac- tories, especially automobile factories, are today filled with EFFICIENCY ENGINEERING 5 obsolete materials which, sooner or later, must be charged to profit and loss as a result of such experiments. The manufacturer gambles in buying equipment, which may become obsolete before it shows visible wear, due to the development of more efficient machines for doing the same work. He gambles every time he employs a new superintendent or foreman, for the man's real knowledge may or may not be to his advantage. He gambles every time he takes on a new workman, for the man's efficiency as regards quantity and quality of work can only be determined by a try-out. And so, failing to take into his reckoning all the costs of these uncertainties in his business, he takes a final gamble by meeting his competitor's price, who in turn is doing exactly the same thing, with the result that sooner or later they are both swallowed up by industrial failures. It is these conditions in the industrial world that have given birth to the new profession called "Industrial or Ef- ficiency Engineering," the purpose of which, broadly speak- ing, is to provide the manufacturer with a unified code of standards to work under, which will put him on or some- where near the same basis as the banker and the merchant in chance-taking. Phases of Industrial Engineering The development of industrial engineering has thus far been effected not through any educational institution, but by two separate and distinct professions or classes of men : the industrial or factory accountant, sometimes called a systematizer ; and the mechanical engineer, sometimes called an efficiency or production engineer. Both are nec- essary to complete the work of industrial engineering, but neither can do very much alone, for the simple reason that 6 UNIFIED ACCOUNTING FOR INDUSTRIALS the function of the former is largely analytical in its nature, dealing only with results as a finality, while that of the other is essentially creative, dealing almost wholly with causes. In other words, the one enables an executive to measure results obtained, while the other sets into activity causes that make possible a predetermination of results. One has worked from the top down by the process of deduction, while the other has worked from the bottom up by devising means for eliminating unnecessary waste; the combined effort of both resulting in a standardization of factory operations. Therefore, to qualify as an industrial engineer, a man must not only be a master of both of these professions, but also be able to reconcile the necessary workings of one with the other. Principles of Industrial Engineering The analytical work that has been done by industrial engineers in the last few years has been something tre- mendous, and out of it have been developed certain principles that will go a long way toward the required unified code of standards. For instance, in industrial ac- counting, the following facts have been developed and standardized : 1. That no matter what a concern manufactures, the elements of operation always reduce themselves to the same primes — namely, labor, material, and expense — and are therefore identical in accounting work for any and all manu- facturing concerns. 2. That in principle, the accounting of investments and depreciation are the same in every manufacturing business. 3. That in addition to depreciation, two accounts should be maintained — one for obsolete equipment and one for obsolete materials. EFFICIEXXY EXGINEERIXG 7 4. That to secure uniformity of costs, repm'rs to fixed assets should no longer be treated as an expense, but charged to depreciation. 5. That labor, material, and expense constitute the units of measure for cost of production. Therefore, the total monthly value of these for any plant must be converted into actual inventoried assets each month. 6. That the commercial transactions of an industrial concern have absolutely nothing to do with production or the costs of production. Therefore, accountants must sep- arate absolutely such expenditures from the operations of a factory. 7. That in addition to the usual accounts of assets and liabilities, there are four analytical accounts — one of profit and loss; one of commercial expense; one of factory over- head; and one of factory production. 8. That through controlling accounts, the wide variables in factory overheads are distributed so as to make the costs of production uniform. 9. That costs divide themselves into two distinct phases: those which pertain to production, or flat costs, and those which pertain to expense which in turn must be absorbed into costs of production. A careful departmental distribu- tion of these expenses is therefore of the utmost impor- tance. Distribution of Expense There is nothing that will mislead the management of a concern more than a lump sum prorating of expense over the product made, and a large percentage of industrial fail- ures can be attributed to this cause alone, which too often results in a selling of goods below cost or at no profit, as the following instances well illustrate : A large concern manufacturing automobile parts and g UNIFIED ACCOUNTING FOR INDUSTRIALS kindred lines took in a great deal of outside contract work, especially for drop forgings and nickel-platings. They were always successful in getting all of the drop forging con- tracts they wanted, but were unsuccessful in getting nickel- plating contracts. The general overhead applied to every- thing in connection with the factory was 125%. In making up their estimates, this was applied to both nickel-plating work and drop forge work; but the real facts of the case were that the general overhead of the drop forge depart- ment, as a factory in itself, was about 190%. Using only 125%, they were always low in their bids for drop forge work, and consequently secured plenty of business; while the reverse was the condition in the nickel-plating plant, in which the overhead instead of being 125% was only about 50%. Consequently, in estimating, 125% always made the bids for this department too high, with the result that they could get no business. This illustration shows the absolute necessity for de- partmental overheads when outside contracts are taken into the factory to fill-in with in some one department. This particular drop forging department had done work for noth- ing, or at a loss, for nearly ten years before the fact was discovered. To cite another case in point, a large furniture manu- facturer had for years used a common overhead percentage on his production. As a result, when a thorough analysis of his business was made and a departmental overhead was applied, it was proved that out of over 700 pattern numbers, 154 were being sold at an actual loss and 144 more yielded from none to less than 5% profit, with the result that nearly 40% of the business done every year had been wasted effort. Yet, on the basis of his own figures, which spread the common overhead over both labor and material, everything had previously shown a profit. The first year after EFFICIENCY ENGINEERING g all adjustments were completed, the net profits in- creased 13^%. As another instance, a large foundry had always done all its costing on a "per pound" basis. That is, the total expense for labor, material, etc., in the foundry was always divided into the tonnage obtained, and thus reduced to a cost per pound for the entire output. An analysis of the moulding work alone showed that these costs were wholly erroneous. For example, the cost of moulding one pattern weighing 200 pounds was $1.85 ; while the cost for moulding on another pattern of exactly the same weight was $4. The average of the two pieces would be $2.92 each for mould- ing, which would be wrong in both instances, as it would be too high for one and too low for the other. It can readily be seen how such a condition as this would afifect estimating on job work, or costs on regular produc- tion. To rectify the matter, costing was put on a "per pattern" basis which resulted in a very marked difference in making estimates, and increased the net profits of the con- ern nearly 9% for the first year. Unified Accounting In connection with accounting, all the requirements for an industrial concern have been standardized and unified by means of a set of controlling accounts which give a manufacturer as much detailed information about the operations of his factory and its output as they do about the operations of his sales force or the condition of his finances. These principles have been so well worked out that they will apply to any manufacturing plant, the only difference being the nomenclature required to classify the details of any particular business, such as (1) the kind of labor, (2) the kind of material, (3) the kind of expense, and, (4) the 10 UNIFIED ACCOUNTING FOR INDUSTRIALS kind of output that is manufactured. Any manager who has once learned to interpret figures from an accounting system based on such principles, can apply them to any other busi- ness, no matter how different it may be in its nature. The development and standardization of a unified method of accounting had of necessity to come first, other- wise the engineer would have had no way of measuring the actual value of economies that he might effect. Using such methods his analytical work has been far-reaching, and, as a result, he is today able to predetermine the operating conditions required for many kinds of industrial plants. In doing this, however, he realizes at the outset that in working toward better conditions in any manufacturing business, the real purpose should be to increase production per unit of investment and cost. This is wherein, as an engineer, he differs from the industrial accountant or systematizer, for usually the very first subject he takes up is to determine from the nature of the product made the equipment used, the labor employed, whether or not the plant is yielding all the output it should for the investment made, and, to determine this, he must first standardize the product manu- factured as regards kind and variety. Unified Output An analysis of present-day factories would show that most of them are making two or three times the variety of items that they should for the volume of their output; that in many instances they are really doing a jobbing business and not a manufacturing business; that they set up, knock down, and set up on machine tools so often in changing from one kind of work to another, that their costs of production are abnormally high, and the workman- ship usually poor; that all this results in large waste through SDoiled work and an excessive investment in small tools — EFFICIENCY ENGINEERING II to say nothing of the lost time of machines, which in itself greatly reduces the output. This unscientific policy is usually found in concerns that are dominated by a sales policy rather than a manufacturing one. Investment in a manufacturing business is for the purpose of producing some item or items that will meet with a steady market by virtue of merit and price. This can only be done by a low cost of production. Therefore, the first aim of any manufacturing concern should be to keep its investment busy every minute of the time in order to obtain this low cost, and any concern not doing so is usually dominated by an administration that has not suf- ficient control of its market or sales force to warrant the investment ; in other words, stockholders' interests have not been properly taken care of. The big money-making plant of today is the one that makes a small variety and a large volume of each thing that it produces. The concern that makes a large variety and a small output of each item is subject to such high costs of production and fluctuation in volume of output per item, that it can never meet the competition of those who manufacture on a scientific basis. Those who manufacture in an unscientific way are merchants rather than manufac- turers and use the factory, with all of its investments, as a servant for the sales department. Function of a Sales Department Almost any business manufacturing on a proper basis and making good dividends, simply uses the sales depart- ment as a servant to its investment, and does not allow it in any way to interfere with manufacturing operations after designs are once accepted by it. The management of such a factory standardizes its product, schedules it to the extent that will keep the investment and labor busy, and then de- 12 UNIFIED ACCOUNTING FOR INDUSTRIALS mands of the sales department that it shall sell the specified output in its standard form. There is usually no difficulty in doing this, as such a manufacturing policy always brings high quality and low costs — the only two things in the world that can win every time in competition, provided always, of course, that in design and utility the product made is up to some recognized standard. Salesmen and sales man- agers are only human, and w^ork along the lines of least resistance, usually with the idea that the larger the variety of items they have to sell, the better they can control the market and make sales. This may be true from their point of view, but when variety reaches a point where it so in- creases cost as to rob sales of all profit, the policy is fatal. Therefore, standardization of the product is the engineer's first problem. The result of correcting such conditions is well illustrated by the following examples. Results of a Unified Output In one instance a variety of 89 items of manufacture was made. The annual net profits of the business averaged 5^2%' A careful analysis brought out the fact that the sales on many items were so small as to make them profit- less. In some instances they were made at a loss, due to high costs of production, because of the small quantity made. The variety was reduced from 89 to 56 profitable items. The factory was put on a schedule basis of fairly long runs for each different piece manufactured. By this means, the cost of production was so greatly reduced that, notwithstanding a considerable reduction in sales price, which increased the volume of sales nearly 50%, a net profit of 14^% was realized the year following. Another instance along these same lines was one con- nected with the manufacture of units of very small value, viz. : buttons. The concern in question manufactured about EFFICIENCY ENGINEERING 13 a thousand varieties. The introduction of an analytical cost system revealed the fact that out of the thousand kinds nearly 600 kinds were sold at absolutely no profit or at a loss. The total volume of business was in the neighborhood of $400,000 a year. The concern paid small dividends, but could have paid the same dividend on an output of less than $200,000. Improved methods of manufacture re- covered a profit on a little over 300 of the kinds that had previously been profitless, and the manufacture of the other kinds was abandoned. Result — a 10% dividend instead of 2/.%. Another instance and one of considerable interest, was in connection with a concern manufacturing bicycles and kindred lines. The first complaint the manager made was that his order department was continually in a mess and he wanted that straightened out first. A thorough investi- gation revealed the fact that (as is the custom in such a business) he gave a large number of options in the shape of tires, pedals, saddles, handle-bars, etc., on each model of bicycle that he made, with the result that on one individual model of bicycle 414 separate and distinct purchase orders could be made. As he manufactured several models, it is little wonder that his order department was in a continual state of confusion. The remedy was to cut out the options as far as possible and to standardize the entire line. By doing this his inventory on materials was reduced 27%, and for the first time in seven years the concern paid a dividend. Stabilizing Production Another cause for many industrial disasters is that many merchant managers run their factories altogether too much according to varying sales conditions, increasing and de- creasing their output and the amount of labor employed 14 UNIFIED ACCOUNTING FOR INDUSTRIALS accordingly. On this account their investments are idle a great deal of the time, simply showing that plant investments have been made out of proportion to the market under control. More money could be made by cutting selling prices and keeping the investment and labor busy, because the difference in cost of production would make this possible. An instance which brings out the above facts very forcibly was a concern which manufactured lamps of a cer- tain kind as one department of its business. This department had lost the company $25,000 the previous year and they were about to abandon it. Before doing so, however, they called in an industrial engineer to discover, if possible, what was wrong. A careful investigation of the lamp department showed that the costs were abnormally high because the lamps were made up on order, that is, as they secured one contract after another. The quantities put through the factory varied, being sometimes very small and sometimes quite large. The engineer decided that, unless the volume of business could be increased about fourfold, it would be necessary for them to abandon the manufacture of lamps. With this information in hand, he studied out just what the costs ought to be, provided such a volume of business could be put through the factory on a schedule basis. His report to the manufacturers stated that they ought to save about 16% on the cost of production, and that by virtue of this reduction, they could cut their sales price 10% or 12%. Such a cut would undoubtedly increase their sales up to the required amount. After due consideration, the concern agreed to the sug- gestions of the engineer, and instructed him to take hold of the proposition from a manufacturing point of view. This he did, and as an actual result made a reduction in costs of 18%, while sales increased something over threefold, and a EFFICIENCY ENGINEERING 15 profit of over $8,000 was produced in the lamp department the first year. This same condition often exists where a concern makes for its own use items that are a standard in the open market. Their quantity requirements are often too small and the variety too great for economical production. For example, in a medium-sized concern that made freight cars, they had always made their own bolts. As they never had any cost system, they supposed, of course, they could make their own bolts much cheaper than they could buy them. A careful working out of costs showed that it was costing 13% more to make their bolts than to buy them, notwithstanding the fact that they had good ma- chinery for bolt-making. The reason was easily ascertained. The quantity was too small and the variety too great, and they changed so often on the machines that these latter were idle half the time. They never ran through more than 4,000 or 5,000 bolts at a time; and it was found that they would have to run through at least 25,000 bolts at a time in order to make them at a cost equal to that for which they could be bought. As a result of this careful study, the management ob- tained outside contracts sufficient to give them the quantity of production needed to produce their own bolts cheaply. Standardizing Output All of the foregoing instances simply illustrate the pro- cess of trimming down variety; or, in other words, a standardizing of the things to be sold. The real standardi- zation of production comes in studying the possibilities for using as many of the same pieces or parts on different models or units as possible, and a careful analysis of the operations, equipment, and labor required for producing these. l6 UNIFIED ACCOUNTING FOR INDUSTRIALS In one instance a builder of houses designed the pieces and parts for a roof so cleverly that eighteen distinctly different roof models could be built from the same cuttings. In a large concern manufacturing harvesting machines, the inventories of raw material were reduced nearly a third by an analysis of this kind, which revealed the fact that there was not enough difference in many of the flat, round, and angle irons used on the various models made to affect them mechanically. This also applied to bolts, screws, rivets, and many small castings. Standardizing these parts not only resulted in reducing the inventory, but gave much larger runs in each set-up of a machine, producing marked economies in this way. In an automobile plant making three sizes of motors and eleven automobile models, a standardization of parts resulted in effecting an interchangeability of individual pieces to such an extent that 1,160 were discontinued. This not only greatly reduced raw material and repair parts inventories, but greatly increased the factory output and eliminated many of the shortage troubles. This, like the harvesting machine concern, was simply a case where the engineering depart- ment and the manufacturing department had worked on independent lines. Designers are not always manufacturers, and as a consequence do not always take possibilities of this kind into account. Well-Balanced Equipment After an analysis of this kind, the industrial engineer takes up the study of operations to be done on the different pieces and parts made and the equipment available for doing the work, both as regards quality and quantity; and right here is where he runs across some very difficult problems to solve. If it were possible to get a total of idle time, and conse- EFFICIENCY ENGINEERING 17 quently investment in unused tools and equipment, it would be startling. The principal cause for this condition is that, in many lines of manufacture, various departments and the equipment of same are not so balanced with other depart- ments as to produce a uniform output. An examination of almost any factory would reveal the fact that many ma- chines are idle from half to two-thirds of the time, while other machines are not of sufftcient capacity to meet the demands made on them, even by running them overtime. To illustrate this point more fully, an actual instance may be cited : A certain plant had a total investment of about $800,000, yielding an average annual output of about $900,000. In this plant, some of the departments and machine tools during certain portions of the year ran overtime and night shifts, while others had scarcely enough to keep them busy nine hours a day and many were not used an average of three days a week. Fortunately, this company had plenty of opportunity to expand its market, as it made only about 6% of the total market requirements in its particular line. Therefore, the expert went to work to find out what should be done to balance up the output and the equipment in the plant. A careful analysis, by operations, of the product manufactured, and, a detailed study of what could be done upon each machine, together with its capacity for doing the work required, showed that the factory turned out its annual output by running some machines eighteen months on a ten- hour basis; while others were required but four or five months on the same basis. Under these conditions, the problem was to shift the work around on different machine tools, to find out just what machinery should be bought so as to balance up the output, to keep all of the machine tools busy all of the time. l8 UNIFIED ACCOUNTING FOR INDUSTRIALS and to ascertain what output could thus be obtained. This took the time of a number of men for several weeks, but the results obtained warranted the expenditure many times over. It was found that it required exactly $69,000 worth of added machinery to balance up the plant for a uniform output in all departments; and that by purchasing this machinery, the output could be increased from $900,000 to $1,500,000 per annum. This factory gives an instance where a $69,000 increase on an $800,000 investment produced an output 66% greater than was already being produced. After this investment was made, all overtime and night shift work was abolished. Looked at from another point of view, on a $900,000 output, the business was overinvested in by at least $275,000; and overinvestment is a condition in hundreds of plants today. Standardization of Labor Next, and perhaps most important of all, comes the standardization of labor and its application to equipment usage — an analytical work that is usually done under the name of "scientific management." In most factories, both foremen and men do work after a fashion of their own, according to their individual experi- ence and judgment, both of which vary greatly with different men. Consequently, there is no standard by which different men shall do the same kind of work so as to produce the same results. As men leave a factory, one by one, and others take their place, methods of doing the work vary accordingly. To what extent these changes take place may be readily under- stood by the statement that, in many lines of manufacture, the change in men or "labor turnover," is equal to the entire force annually. There are some automobile concerns where it equals two and one-half times the average working force. EFFICIENCY ENGINEERING 19 Consequently, the same work is subject to many different methods of handling in the course of a year, with the result that both the volume of output and the costs vary greatly, as does also the quality of the work done. The interchangeability of parts on American-made machinery is a well-known feature and has been brought about by a standardization of the various products made. Scientific management is now endeavoring to do exactly the same thing with labor. That is, it is determining methods which will standardize tlie way in which work shall be done, irrespective of foremen's or men's experience, so that no matter how much the labor factor may change in a factory, the work will always be done in exactly the same way, with the same accuracy, and with practically the same speed. The greatest obstacle to this work today is the instability of labor in general ; there is little use in taking a force of workmen through a course of motion study training if they are to leave by the time or before they get through the course. The first step is to insure (by establishing an incentive of some kind) a stability that will warrant the proposed educa- tion in efficiency. Adjustment of Labor and Equipment "Equipment" must also be considered in this connection. If observations are taken on twelve different men, operating exactly the same machine, on the same work, in the same or different factories, a surprising difference will be found as regards both the quality and the quantity of work done. To standardize it, the possibilities of the machine and its accessories, in the shape of tools, etc., as well as the operator who runs it, must be studied. That is, the physical motions of the man in handling the work and the machine, as well as the performance of the machine itself in doing the work must be carefully analyzed and synchronized. This only 20 UNIFIED ACCOUNTING FOR INDUSTRIALS applies to the individual machine. Attention has already been called to the grouping of machines and the balancing of the equipment. Results of Scientific Management In concluding this introductory statement which is in- tended to give an understanding of the principles of scientific management and of what the work really means, a brief review of some actual results obtained by its application may be interesting. In a plant where steam-heating apparatus was manu- factured, a man had worked for years turning a certain piece on a particular machine. He had always been paid by the day, was considered a good man, and everyone was satisfied until an exponent of scientific management entered the shop to study its operations. Among many other operating details the work of this man received attention and the man, the work, and the machine were carefully analyzed. The man had been receiving $2 a day, and he turned out an average of ten pieces a day. In other words, it cost the company 20 cents a piece for labor on his work. The expert insisted that a great deal more could be obtained from the man and the machine. The superintendent did not believe it, but was willing to try out the suggestion offered. The expert told the superintendent that the work was worth about 10 cents a piece. The man was offered 10 cents a piece, on a piece- work basis, and was ready to quit his job, but the superin- tendent prevailed upon him to try it. To give the workman every chance to succeed, his work was laid out in a scientific manner, he was told just how to handle and place his work in the machine, the exact speed the work was to be run at, the cut that was to be taken in the metal by the cutting tool, etc., etc., and on the last day EFFICIENCY ENGINEERING 21 of the third week of trial, he turned out thirty pieces, making- $3 for himself instead of $2, and the work cost his employer only 10 cents a piece instead of 20 cents. The man had literally been robbing both himself and his employers for years without either one of them being aware of it, which is a condition that exists in thousands of factories today. In another instance, there was to be made in a factory a certain part of a new gasolene engine. Both the superin- tendent and the foreman of the department were called in by the expert and asked what they thought would be a good record day's work for a man on that particular piece. Both of these men were old employees and had a thorough knowl- edge of the machine on which the work was to be done and of the man who was to operate it. After due consideration, their answer was, that 350 a day was the absolute limit. In the meantime, the expert had studied out his own method of handling this particular piece in processing it, the speed it could be run at, the changes in the shape of cutting tools that were necessary to remove a given amount of metal in a given time, what cuts should be taken first, and just how the work and the machine should be handled in every detail. Having this knowledge at hand, he im- mediately told the superintendent and the foreman that 600 was to be the limit he would set on the piece. They said emphatically that it was impossible, but at the end of the seventh day the workman turned out 660 pieces as his work for that day, earning a bonus of 10%. Broader Applications of Scientific Management These two instances illustrate only individual and simple cases. It will be of interest to see how this sort of manage- ment has worked out in a broader application. A certain manufacturer had about $300,000 invested in equipment. His factory was better than the average, and so 22 UNIFIED ACCOUNTING FOR INDUSTRIALS were his foremen and men. An increasing demand for his output brought him to the point where it seemed necessary to spend at least another $100,000 for equipment. His factory, however, was located in a large city, every inch of floor space that he had was occupied, and there was no op- portunity for him to purchase adjacent property for expan- sion. So, a move was staring him in the face. The manufacturer in this case knew little or nothing of scientific management, for always having had a good money- making business, he had never interested himself in such questions. However, the problem was a difficult one and he employed an expert to go into his factory. The result of the expert's recommendations was an increase of 33% in the output of the factory in a period of six months. In many instances the work of individual tools was doubled. On some it was increased 25% to 30%. The expert not only saved his client the $100,000 investment, but also the labor, power and expense that would have been required to run the addition to the factory afterward. In fact, he increased the efficiency and output of the existing equipment and labor to such an extent as more than to double the actual net profits of the business. In the three cases cited on the foregoing pages, there was unusual opportunity to apply the principles of scientific management. Experience has shown that some kinds of business are much more suited to these labor refinements than are others, and that the degree to which they can be carried depends in large measure on the nature of the business. It is also true that the degree of efficiency to which labor may be developed depends, in large measure, upon the stability of the labor, as well as upon the kind of output manufactured. For example, a certain concern em- ployed 2,200 shop hands regularly; yet, during twelve months they laid off 5,380 hands. Such instability of labor EFFICIENCY ENGINEERING 23 as this makes the ultra refinements of scientific management simply out of the question. In conclusion, one more instance may be cited to show the economies obtained through putting a factory and a sales department on a schedule basis : A concern manufacturing furniture handled its business as do all such concerns, by manufacturing according to vary- ing stock conditions. That is to say, whenever a pattern number ran low, a cutting order was put in for some quan- tity, according to the superintendent's or manager's judg- ment. Each pattern was finished up to a certain point, and then put into a warehouse until shipped, at which time the final finish was made. This resulted in three undesirable conditions : 1. A large warehouse Inventory. 2. A large repair expense to stock, 3. A large loss on "close outs" semiannually, because the cuttings were often greatly in excess of sales, and new patterns would push older ones out of the market. To correct these conditions, the line was reduced in variety by cutting out the small sellers ; the sales department was required to go over its sales records on the remaining patterns, and from them prepare a statement of the quantity it would agree to sell of each pattern each month for the next twelve months ; and the factory was scheduled to pro- duce each month the sales department's estimate of sales. As a result of these changes, 75% of the total output went right to the shipping room instead of to the warehouse ; the inventory was reduced $55,000; $20,000 repair work to stock was reduced to $4,000, and the semiannual "close outs" were entirely eliminated. The whole plan amounted to a saving of about $24,500 a year and a withdrawal of 24 UNIFIED ACCOUNTING FOR INDUSTRIALS $55,000 from investment. Furthermore, the value of the output was increased 23%, with the same pay-roll and equip- ment, by properly organizing the factory to handle work on the new lines. Many other instances could be cited, but those given will suffice to show how the industrial engineer is developing his profession, and, in a measure, to what extent he has al- ready obtained results. He is not merely a systematizer. He is not simply an accountant. To him, these things are only a means to an end. He analyzes, standardizes, organ- izes, and unifies the workings of an industry in its entirety, in his effort to obtain maximum production at minimum cost and with minimum investment. He might well be called "an industrial pilot to captains of industry." CHAPTER II ANALYZING AN INDUSTRIAL MANAGER'S MONTHLY BALANCE SHEET An analytical treatment, demonstrating by figures what Unified Accounting does and its value as a controlling medium in connec- tion with finances, inventories, investments, sales, purchases, expenses, overheads, produc- tion and organization, together with the rela- tion of these to one another. CHAPTER II ANALYZING AN INDUSTRIAL MANAGER'S MONTHLY BALANCE SHEET The Work of a Manager An industrial manager, \n undertaking to accomplish certain results, should shape his organization to that end, assign the work to be done to the various department heads, and then, himself, supervise their handling of detail. That is the whole story in a nutshell, as to what the work of a manager ought to be. But a manager may have all the intellectual power imaginable, and yet, lacking the absolute facts with which to supervise his work, he is likely to become the slave of his organization, instead of its master. His departments will run him, instead of being run by him. The ship will have twenty captains, instead of one, and it will be impossible for him to steer a definite course to success. To supervise intelligently, he must have facts — absolute facts — concerning the operations of his business, at all points. Verbal information is unreliable and always incomplete. Special reports are frequently misleading. If he depends upon this kind of information to guide him in his supervi- sion, he is at the mercy of various department heads, and must not only sacrifice most of his prestige, but will fail in producing many possible economies, and will usually pile up inventories instead of dividends. To direct with certainty, he must be able to judge the 27 28 UNIFIED ACCOUNTING FOR INDUSTRIALS work of others not by intentions, promises, and excuses, but by cold, hard facts, as shown by some comprehensive method of measuring the results obtained by those to whom he has assigned the work. Purposes of Unified Methods of Accounting The unified methods of accounting which are here pre- sented are intended to furnish an accurate instrument for measuring results, in the form of a detailed accounting system fitted to every element in a business, and governed by a set of controlling accounts. The installation and opera- tion of such a system is usually no more expensive than the fragmentary systems used in most factories today; yet the resulting benefits will easily be recognized by any manu- facturer who will carefully study and apply the principles discussed. There have been many different accounting systems con- structed for manufacturing concerns, some of which are so elaborate and expensive as to be burdensome and top heavy, simply because they compile regularly much information that is never used by anyone. By these unified methods, however, it is often possible to trim them down to a practical system of accounting without sacrificing the good they may have accomplished and without destroying the comparability of the data. What is required of any accounting system is certain, definite information, every bit of which is usable and used, which is founded on basic principles, and all of which is so unified that every fact it presents is related to a common whole. The Monthly Balance Sheet Any manager who is giving serious thought to the success of his business desires first of all to know those ANALYZING A MANAGER'S BALANCE SHEET 29 factors which control not only the business, but the personnel of his organization as well. Nothing will give him this as well as an analytical monthly balance sheet. The manager of any large manufacturing concern should no more undertake to run his business without a statistical monthly balance sheet, than should a superintendent under- take to make an automobile without detail drawings. The balance sheets of many manufacturing concerns ap- pertain to little more than commercial transactions. Usually, where a cost system has been developed, bookkeeping is one thing, cost accounting is another, while production is treated as an incident in so far as accounting is concerned, and often anything like accurate information about the busi- ness as a whole is obtained but once a year. The author has devoted much time and study to perfect a unified method of accounting for industrials which should be to the manager of a manufacturing concern what detail drawings are to a superintendent, i.e., something definite to work from, and he takes pleasure in presenting the results of his labor in the form of a complete set of balance sheets (Form 1) worked out in detail, showing an entirely new arrangement of accounting, as obtained by unified methods, especially as regards factory operations and production. These sheets represent a unification of all cost accounting, bookkeeping, and general accounting into one set of con- trolling accounts, and give in addition the complete in- ventories of production as well as the costs of production. In other words, if a factory purchases so much material, labor, and expense each month, the accounting system must render an inventoried balance of these items, and this in turn must be balanced with the controlling accounts. By controlling accounts is meant a set of accounts that will give certain balances in connection with a business entirely inde- pendent of accounts as carried in current ledgers; in other 30 UNIFIED ACCOUNTING FOR INDUSTRIALS words, the balances which constitute controlling accounts are obtained from one source and compared against corre- sponding amounts from the routine accounting work of various departments. In this way, an absolute check on the accounting work is obtained, as well as a control over the various activities of the organization. These balance sheets should be completed and in a manager's hands not later than the eighth of each month for the month previous. During the month a "General Manager's Daily Digest" is used, which furnishes informa- tion on sales, shipments, finances, purchases, labor, and schedules in such a way that these balance sheets in part are a monthly summary of the items appearing on the "Daily Digest" sheet. (See Form 2.) These balance sheets show in detail not only what has taken place in the business for the month, but also gives comparisons from the month previous and cumulative statis- tics down to date for the year. They also show comparisons of the present year with the year previous on the same dates. Further, the classification and statistical comparison as a whole are such as will not only give any manager an oppor- tunity to take immediate action in planning for the future, but at the same time will give him control of the organization under his charge, as will be shown in the general analysis. In analyzing the balance sheets shown in Form 1 as they should be analyzed by the manager of the company, it is necessary to study them from three different points of view ; first, from that of the financier ; second, from that of the executive; and third, from that of the manufacturer. Analyzing the Balance Sheet — From the Standpoint of the Financier Under this caption there are four prime factors of suc- cessful operation to be considered : ANALYZING A MANAGER'S BALANCE SHEET 3^ 1. The solvency of the company, determined by a com- parison of its assets with its liabilities, giving- due consideration to the character of same. 2. Its earning capacity, determined by comparing its total sales against gross and net profits. 3. Its earnings as compared with the investments made. 4. The handling of the business as a whole. It will be noted in the balance sheet shown in Form 1,* that current assets total $197,924.10; that the inventory of materials and merchandise amounts to $283,563.70. This is as far as the financier can go, because these two totals constitute all of the quick assets, which amount to $481,- 487.80. Against this there are total current liabilities of $170,685.78. In other words, there is $310,802.02 more in quick assets than there is in current liabilities. A busi- ness of this nature would be entitled to carry liabilities to the extent of at least one-half of its total quick assets ; there- fore, there is still a borrowing capacity of not less than $70,000. The profit and loss account shows that there was a net profit of $14,955.63 for January, 1917, and that the net profits for eight months have been $72,855 which, on the total volume of sales for eight months ($785,804.75), equals 9.2%. Therefore, the business as a going concern is in a very healthy condition, especially in view of the fact that the net increase in sales for the current month has been $42,745.14. The total assets, including investment in the business, are $859,643.16. The net profits for eight months having been $72,855, the business is paying at the rate of about 13% per annum on the investments, which is very satisfac- tory. *As a matter of convenience, many of the amounts in this discussion have been given in round numbers. 32 UNIFIED ACCOUNTING FOR INDUSTRIALS Conservatism is shown in the management of the busi- ness by the fact that depreciation is charged into costs monthly, and that accrued dividends on preferred stock are not carried in Profit and Loss Account, General; so that, after deducting dividends on preferred stock, the $63,532.72 earnings in eight months are free to be applied as a dividend on common stock and for surplus, according to the decision of the directors. Accounts receivable have increased only $20,000 on an increased sale of $42,000, which indicates a healthy cash market. Again, current assets have increased by over $13,000, while current liabilities have decreased by $6,000. Accounts payable have increased only $12,000 as against an increase of $23,000 in general stores, all of which goes to show a strong tendency to discount purchases. That finances are being well handled is evidenced by the fact that for the eight months cash discounts and interest received have amounted to $14,196.60; furthermore, the expense in the office, covering all accounting work, has amounted to but $21,098.63 for the same period of time. In other words, the accounting department has earned about 66^% of its own expense, or 22% of the entire general commercial expense; therefore, to a banker, the entire condition of the business would be most satisfactory in every way, and one in which there would be no question concern- ing a loan of $70,000 or $100,000 if for any reason it were required; and if the present volume of sales were to keep up, an increased investment, either of a temporary or permanent kind, would probably soon become necessary. Analyzing the Balance Sheet — From the Standpoint of the Executive When a manager creates an organization around him, he should not, as is too often the case, assume the responsi- ANALYZING A MANAGER'S BALANCE SHEET 33 bilities of his various department heads, or do their work for them, but should throw the whole responsibility on them and then judge them altogether by results. If the results are not satisfactory, he should immediately make changes in his organization and get men big enough for the positions. To be able to w^ork on these lines he must have a set of controlling accounts that control not only the finances and investments of his business, but his organization as well. What is meant by this is illustrated in the following briel analysis : The manager would first check up the cashier's depart- ment by asking for the bank balances at the terminating period of the balance sheets. If they check with cash on hand of $25,070.20, all is well. He would then ask the billing department for the balance of accounts receivable as shown on the customers ledger, which must check the controlling account of $120,172.80, If their balances agree, their work is correct. If not, they are in error and they must locate the discrepancy. The bookkeeping department is then called upon for the current accounts payable, which must check the controlling account of $109,627.68. If it does not, they are again in error and must locate the discrepancy. Next, the same inquiry applies to general stores inven- tory. The stores ledgers must check the controlling account of $112,490, and so on for all important accounts con- stituting liabilities and assets as shown on the balance sheets. After the heads of these particular departments have been found in error two or three times by a manager, the moral influence that these controlling accounts have over them is far-reaching, as it not only compels them to do their work right, but keeps them from defalcation of any kind. This in itself is worth many times what it costs to get 34 UNIFIED ACCOUNTING FOR INDUSTRIALS information in this form, as it in a way really constitutes a self-auditing system. Reviewing further, as an executive, the work of the organization as revealed by the balance sheet, the next con- sideration is the collection department. From this must be obtained an explanation as to why accounts receivable past due have been allowed to increase $7,314 or a little over 50%, as shown on the balance sheet; and also why notes receivable have been allowed to increase $512.25. In the collection of these accounts, however, it is to be observed that accounts receivable, consigned, have decreased over $7,000. This, however, reflects a credit on the sales de- partment rather than the collection department. At first glance the condition in the purchasing depart- ment is not altogether satisfactory, inasmuch as general stores have increased $23,000, while factory production has had a slight decrease in its use of general stores. This re- quires information from the stores department as to what the items are that have caused an increase of 25% in the general stores inventory, and an explanation from the pur- chasing agent. Nominally, the general stores inventory should not be over 60 days' factory requirements, as most materials can be obtained in less time than this from the market. The production sheet shows that $45,000 worth of general stores were used for the month, which would make a maximum inventory of $90,000 ; whereas the inven- tory is seen to be $112,490, or $22,490 too much. The decrease in inventory on work in progress, semi-finished stores, and finished stores, will be taken up from another point of view. From investment under assets, it appears that better- ments have taken place this month to the extent of $5,442.90. Further, the factory production sheet shows that better- ments have been made for the eight months to the extent ANALYZING A MANAGER'S BALANCE SHEET 35 of $22,780. From a knowledge of factory conditions, this seems excessive for the current month. Therefore, the office manager must give an explanation as to why it has been necessary to expend $1,100 for office furniture and fittings during the current month, which is apparently an excessive amount. Next, the superintendent is asked for an explana- tion as to why it has been necessary to spend $4,342.90 for machinery and tools, dies and jigs, etc., during the current month. While it is true that both the office manager and the superintendent have an absolutely free hand in making ex- penditures, it is also true that they are answerable for exactly what they do every thirty days, and after men have been under such management as this for a few months, they think out their problems with a great deal of care before they make purchases of any character. From the profit and loss sheet analysis, the sales depart- ment is to be complimented, inasmuch as its net sales have increased $42,745.14 for the month; especially is this so after looking at the analysis of commercial expense, for while sales have increased 42%, selling expense has only increased 14% over the previous month. There is one thing, however, to see the sales manager about immediately, and that is the fact that sales have increased $34,762, or 400%, on one model, while they have been reduced by over $20,000 on another, which is evidence that one model of machine is taking the place of another in the market. If this is so, manufacturing conditions must be immediately adjusted accordingly; therefore, a complete explanation of the means which have been adopted to increase the sales on this particular model is demanded. This will probably enable the manager to judge whether it is a permanent or temporary increase and whether it is local or general in its territorial expansion. 36 UNIFIED ACCOUNTING FOR INDUSTRIALS The whole commercial analysis of the business, with some few exceptions, shows it to be fairly satisfactory from an executive point of view, especially in view of the small net increase of $1,257.50 on total commercial expense as compared with the total increase in sales. The only other point in this connection would be to take up with the adver- tising manager the total monthly advertising of $4,168.90, which could possibly be reduced for a while, in view of the increased sales. The average yearly percentage of commercial expense to sales is 15%. Therefore, 12.1% is extremely satisfactory and shows that this percentage has been reduced during the current month by 4.3% over the previous month. Analyzing the Balance Sheet — From the Standpoint of the Manufacturer There are very few manufacturers today who know what production they ought to get from their factories, what they are getting, or in what shape they are getting it. In other words, they have no definite control over the opera- tions of the most important thing they have to deal with, i.e., their investment in plant, material, and labor. This is what a unified accounting system provides for, so in the present instance there is a long session to be held with the superintendent. The total production for the month is $110,800.57, or $939.37 less than it was the previous month, notwithstand- ing the fact that productive labor has been increased by $3,218, as shown on the factory production sheet, and over- head, by $2,101.85, as shown by the increased non-produc- tive labor ($1,610) and non-productive materials ($491.85) on the factory overhead sheet. The decrease of $290 in general stores and of $6,441 in semi-finished stores would seem to show that the produc- ANALYZING A MANAGER'S BALANCE SHEET 37 tion for the month has been obtained by an abnormal in- crease in labor on the work. By analyzing a little further, it will be seen that while the factory used $27,221 in semi- finished stores, it only delivered back to semi-finished stores $21,200, and that out of the total production $5,442 was charged to betterments. The net increase in total production, finished, however, was $16,188. This could only have been obtained, in this case, by reducing a previous inventory which had already had much labor applied to it, inasmuch as the previous work in progress was $64,000, while the net work in progress for the current month is only $47,000. "Assets^ — Inventory" shows that work in progress was reduced $17,127.55, semi- finished stores $13,021.25, and finished stores $1,814.38; or a total of $31,963.18, which is exactly the amount neces- sary to make the increased sales of $42,745, the cost of which is shown to be $31,963.18. This means that while the factory has delivered enough to meet sales requirements for the current month, it has drawn down inventories on work previously done to the extent of over $31,000, and consequently is that much behind sales in its production for the month. Therefore, for the coming month under present sales conditions, the factory would fall behind in its deliveries by something like $50,000, except for the fact that, as shown under assets, there is $47,000 work in progress, $67,000 worth of semi- finished stores, and $56,000 of finished stores to draw upon. It will not do, however, to reduce these inventories, as they are not even normal as it is. $56,000 represents only about 12 days' shipping requirements, while the inventory ought never to be less than 30 days' requirements. Semi- finished stores of $67,000 represent only a production of a little over 60 days, as during the current month $27,000 was used in the factory and $7,000 was sold in parts, while 38 UNIFIED ACCOUNTING FOR INDUSTRIALS work in progress Is low by about $17,000; therefore, the condition of the whole factory has to be keyed up, as the inventories are all out of balance in their relation to one another. To do this, the factory must be re-scheduled ; more labor must be put into the departments of first operation; and next month's balance sheet ought to show an increase in the use of general stores of at least $20,000 or $25,000, in order to get work coming through the factory fast enough. Therefore, in view of this situation, it is fortunate that general stores inventory has been increased during the present month by $23,000. The factory overhead for the month shows 80.27%, which Is a reduction of 1.52% for the month previous; and so far as this goes, it is very satisfactory. There are also a large number of similar details in connection \^4th this balance sheet that could be analyzed, such as the percentage of profits on the different items sold, the percentage relation between depreciation and repairs, the various ratios between non-productive and productive elements, etc., etc. Availability and Value of Unified Balance Sheet It should be explained that both in principle and detail these unified methods of accounting can be applied to any kind of manufacturing business, according to its own par- ticular requirements. No matter what a concern manu- factures, it can only use labor, material, and expense as processing factors, and can only buy and sell as commercial factors; and the principles laid down apply. If necessary, inventories can always be divided up into more or less numerous accounts; as can also labor and material or ex- pense of any kind; in other words, we can take the prime totals of assets, such as current, inventory, and investment, and divide them up into any classification that may be re- ANALYZING A MANAGER'S BALANCE SHEET 39 quired. The same may be said of liabilities, also revenue and costs of revenue, and so on for the other various divi- sions that have totals. The value of these balance sheets is also greatly increased where data from the previous year are filled in, as provided for in the last column, for a comparison of contractions or expansions in volume can then be made on a long range basis. Sufficient has been said to show the purpose of these accounting methods, their scope, and also their value to any executive who wants to manage a business on anything like a scientific basis and keep right up to the minute in his work. If any manufacturer will give the time to analyze his own business in the manner indicated, it will not take him long to determine the invaluable assistance such accounting methods can afford him; and the feeling of security he would have in handling his business by reason of being in absolute control of it, justifies many times over the expense and trouble incident to their installation. Manager's Daily Report Nothing is of more value to a manager than a daily report showing the relative value of sales and shipments, and in addition, finances, bank balances, and such other general information regarding agencies, number of em- ployees, etc., as may be necessary to him. Such a report is given in Form 2, which will at least offer a suggestion to any manager for developing a report of this character for any particular business. The arrangement of the items under sales and shipments should be made to correspond practically with the same items as shown on the monthly balance sheet, w^hich in reality are a recapitulation of a general sales analysis made at the end of the month. 40 UNIFIED ACCOUNTING FOR INDUSTRIALS Further information can be supplied on this report, such as any outstanding obligations in the shape of purchase orders, together with such data as "purchases made" of different commodities each day. Other items will suggest themselves to any manager according to his needs for information. CHAPTER III PURCHASING AND RECEIVING A method for making purchases and follow- ing them up — the recording and checking of all such transactions, and the receiving and checking of the goods purchased. CHAPTER III PURCHASING AND RECEIVING Work of the Purchasing Department While this chapter confines itself principally to the specifications and forms required to make purchases, refer- ence is made in several instances to a stores keeper and stores recorder, simply to show the relation between the purchasing agent and stores, and to evidence the fact that any organization must be so worked out that the general stores keeper may be responsible solely to the purchasing department : 1. For the receiving and checking of all materials against original purchase orders, in such manner that all purchases can be checked before being recorded on stores ledgers. 2. For the physical storage of materials and the de- livery of same to the factory at either the store- rooms or the factory departments, as may best conform to the factory requirements. Purchase Specifications To make intelligent and satisfactory purchases, a pur- chasing department should be guided and directed in every instance by specifications, as to both quantity and quality, for everything that is to be bought. Therefore, it is per- tinent to take up at this point the following facts : If a schedule for the making of goods to be sold has 43 44 UNIFIED ACCOUNTING FOR INDUSTRIALS been authorized, it should carry with it authorization to purchase the material, labor, and expense necessary for its completion. If a betterment or repair order has been authorized, the same rule applies; and if office, operating", and factory sup- plies have been covered by a maximum and minimum amount for stores, this should be a standing authorization for purchase up to the maximum amounts. In this way the manager is relieved from the tremendous amount of detail incident to passing on every requisition for purchase. Therefore, a production department should prepare and furnish to the purchasing department detailed specifications as to quantity and quality of material required for goods to be manufactured for sale. On all betterment and repair orders which have been O K'd by a manager, whether for the benefit of the produc- tion department, factory superintendent, or any other de- partment head, specifications for quantity and quality of material should be furnished by the originator of the requisi- tion, but perhaps should not in all instances be prepared by him. On all operating and general supplies, so far as practicable, standard specifications should be furnished the purchasing department by the factory or engineering laboratories. Purchase Requisition Purchase requisitions prepared by people absolutely familiar with what is required as regards kinds, quantities, dimensions, times of delivery, etc., give the purchasing department an opportunity to devote all of its time to the buying and getting in of material on the dates required. Purchase requisitions should be made out in triplicate at least, one copy on white paper for the originator of the PURCHASING AND RECEIVING 45 requisition; one copy on ytllow paper for the purchasing" agent ; and one copy on pink paper for the stores recorder. (See Form 3.) When the stores keeper has need of materials, either to cover schedule requirements, to bring his stock above minimum, or because of a general stores requisition for which he cannot supply the material, he should make out a purchase requisition, send yellow and pink copies to the stores recorder, and keep the white copy himself until the goods are received. The stores recorder will check the requisition with the stores ledgers, fill in the additional data required, keep pink copy, and send yellow copy to the pur- chasing agent for execution. In case the superintendent, or any other person author- ized to do so, requires material which must be purchased, he may make out a purchase requisition, holding white copy, and send yellow and pink sheets to the stores recorder who will check as above and forward yellow copy to purchasing agent. This procedure applies to anything which is to be pur- chased, whether for a production, betterment, or repair order, or for general or special supplies, as in this case the unit of organization for handling materials is complete. There are, however, in very large plants or where several plants are controlled from one central office, reasons why a separate order department should be established to handle all planning and specification work and to control all pur- chase orders, but they are the exception, not the rule; 90% of all industrials should be organized along the lines cited above. The manager, superintendent, or an order department, should O K all purchase requisitions for manufacturing or operating supplies not covered by maximum and minimum amounts, and for all materials required in excess of 46 UNIFIED ACCOUNTING FOR INDUSTRIALS authorized scheduled quantities. Requisitions for all office supplies, printed matter, and catalogues should be O K'd by the manager, as should also all original contracts cover- ing schedule requirements. The purchase requisition must in every case be checked by the stores recorder before going to the purchasing agent, so that material on hand can be checked and utilized, or sub- stitution made if possible. He should fill in on the pur- chase requisition (Form 3) the "Quantity on Hand," the "Quantity on Order," net "Quantity to Buy," and "Descrip- tion of Item — or Symbol" (symbol to be given if used) ; also giving "Last Price," which he obtains from his stores ledger. This furnishes the purchasing agent with full in- formation as to requirements and facilitates the placing of purchase orders. The purchasing agent should be furnished by the production department with all data relative to manu- facturing schedules, in ample time for him to do the neces- sary shopping around and contracting. From the foregoing it is apparent that absolutely nothing should be ordered directly by the superintendent or by heads of departments ; that all purchase requisitions must be checked by the stores recorder; and that the stores keeper and stores recorder must assume full responsibility for goods bought and for their distribution to some other form of inventory. In this connection it must be borne in mind that the general stores keeper is nothing more or less than a custodian of the company's property and that he is accountable for its disposition just as much as a cashier or comptroller is responsible for the disposition of money intrusted to his custody, and that a proper system of handling general ac- counts for the company calls for just as close recording work on stores-keeping as it does for actual money. Therefore, no matter by whom this purchase requisition is made out, PURCHASING AND RECEIVING 47 it must first be handed to the stores recorder who will check it with the general stores ledger to determine whether he has, or has not, any of the goods required on hand or on order, or a satisfactory substitute; then, and then only, sending it to the purchasing agent, as corrected by him, to make the purchase. This will not only prevent overbuying, but will often enable substitution of material to be made for many kinds of small jobs. This mode of procedure gives the stores keeper and stores recorder absolute control of the quantities and amounts of goods that are on hand, whether as applied to specific requirements, or as applied to maximum and minimum quantities of standard materials. In every instance possible, the full information called for by the purchase requisition should be filled in for the guidance of the purchasing agent, as it will save a vast amount of time, both in letter-writing and telephone work, when making purchases. Purchase Order In connection with the purchase requisition (Form 3), the purchasing agent must be provided with a form that will constitute a contract for the purchase, as open order placing, without proposals or bids, is very dangerous and should never be tolerated except in an extreme emergency. To meet this requirement most conveniently, the form of the purchase order should be specific enough in its arrange- ment and detail to constitute a contract. A contract must specify quality, quantity, price, time of delivery and point of destination, and an understanding as to transportation charges. But few purchase orders would seem to cover these points as a regular practice. The one illustrated in Form 4 does. The purchase order should be made out in several copies. 48 UNIFIED ACCOUNTING FOR INDUSTRIALS The first or white sheet goes to the vendor; the third sheet, which is pink, goes to the stores recorder; while the second sheet, which is yellow, is held by the purchasing agent and filed by him with the yellow copy of the purchase requisi- tion. The fourth, blue sheet, without quantity or price, will be filed by the receiving clerk from which to check descrip- tion of materials received when not accompanied by memo- randum. By this color scheme the distinction of each sheet can be determined at sight. Pink sheets for either requisi- tions or purchase orders belong to the stores recorder and yellow sheets belong to the purchasing agent. Additional copies of the purchase order may be supplied the production department and also the accounting department so that invoices as they come in may be numbered and checked. On the bottom of the purchase order there are figures representing dates, from 1 to 31. These are provided especially for reminder purposes to facilitate purchasing When the purchasing agent makes a purchase which he wishes to have followed up, he puts a check mark on the date on which he expects these goods, or expects to hear in regard to them, and also a pencil figure above the date denoting the month; thus, it a purchase was made on the 15th day of the 6th month and the goods were not expected for 60 days, he would place a figure 8 over the figure 15 on the purchase order; or, if in 30 days he wanted to make inquiry, he would in addition put 7 over the 15. The filing clerk makes a memorandum of this order number on a tickler card in the purchasing agent's tickler, so that on the date checked the file containing the order and its correspondence will be handed to the purchasing agent for his attention. This makes an automatic tickler system in connection with purchasing that does away with the necessity for any other kind of follow-up system. Any further information required for follow-up purposes can, PURCHASING AND RECEIVING 49 of course, also be shown on these same tickler cards. All the orders or data required to be brought up on any particu- lar date will be put on one card and this card will be filed ahead under the index of the date required. (See Form 5.) The purchasing agent should also keep a perpetual price file. A card should be made out for each concern from which goods are bought and on this card one or two lines should be given to each of the articles purchased from them ; the price and date of quotation should be given after each article, and when any change is made in quotation, this price card should also be changed showing date of new quotation. In this way the purchasing agent has always before him the price of all material according to last quota- tion. This would not apply to special items bought very infrequently. Material Receipt and Notice Having requisitioned goods and provided a means for purchasing them, the next step is to receive them at the factory. Consequently, for the receiving department a "Material Receipt and Notice" (Form 6) has been provided as the first step toward this end. All receipts of whatever nature should be checked, counted, weighed, and entered upon this receipt. Under no circumstances can the goods be checked from the original invoice, as their receipt must be invariably entered on this form. The material receipt and notice should be made out in several copies but must conform to the proper color scheme. The following represents its full complement and disposi- tion: a yellow sheet, which is to be given to the purchas- ing agent ; a pink sheet for the stores recorder ; a blue sheet, together with the goods, for the stores keeper ; a white sheet, when necessary, to the production department; and one sheet to be retained by the receiving clerk and filed in alpha- 50 UNIFIED ACCOUNTING FOR INDUSTRIALS betical order under the name of the concern ordered from. Upon receipt of this memorandum, the purchasing agent should immediately send out to the stores recorder the original invoice. As soon as the stores recorder receives the original invoice for any goods, it will be his signal to bring together all four papers of the transaction held by him, viz : 1. Material receipt and notice, as made out by the re- ceiving clerk (pink sheet). 2. The triplicate of the original "Purchase Order" (pink sheet). 3. His own copy of the purchase requisition (pink sheet). 4. The invoice from the dealer. This method leaves absolutely no excuse for the stores recorder's not getting the proper count and record of all goods received, and it will settle all questions of difiference that may arise as to quantity, price, etc., before entry is made in his stores ledgers; in this way making the ledgers absolutely reliable for the items which they cover. It may be necessary under some conditions, such as an urgent demand for material, slow arrival of material, or non-arrival of invoices, to enter goods on the stores record as received before checking with the invoice, but this prac- tice should not be followed as a general rule. The purchasing agent should impress all creditors with the fact that invoices must be promptly forwarded so that they will arrive by the time the goods do; therefore, on the purchase order is a "Notice" for this purpose which reads, "All goods are held subject to your order until we receive an invoice." This means that no goods should go into stock until the invoice is received, so that in case of shortage or overage, or a lack of specified quality, adjust- ments can be made to cover any consignment before it loses PURCHASING AND RECEIVING 51 its identity by being absorbed into stock or made up into product. Under no circumstances, except to obtain discounts from reliable firms, should payment be made on consignment of goods until they have been checked as indicated above. After this checking has been done, the purchase requisition, the copy of the purchase order, and the invoice, all duly stamped and attested by the stores recorder as being correct, should be immediately sent to the accounting department for audit and payment, a copy of "Material Receipt and Notice" remaining permanently with the receiving department. Filing Purchase Requisitions The factory may have requisitioned something the stores keeper did not have on hand; if so, the stores keeper will immediately make out a purchase requisition, attach the general stores requisition to it, and file in a temporary file. When the copy of the purchase order is received by him, he will withdraw frcm the file the purchase requisition which this covers and file them together alphabetically under the name of the concern ordered from. As soon as the original invoice for such goods has been checked and entered on the stores ledger, the general stores requisition will be honored and properly charged ; while the purchase requisition, copy of the purchase order, and ma- terial receipt and notice will be attached to the original invoice and forwarded to the accounting department. Filing Purchase Orders Vertical filing cabinets should be provided for the pur- chasing agent, and in these cabinets all purchase orders must be filed in serial order. As soon as a purchase order is made out, a file must be started, and in this file must be imme- diately placed with the purchase order, the purchase requisi- 52 UNIFIED ACCOUNTING FOR INDUSTRIALS tion; then all correspondence relating to this particular pur- chase order must be carried in the same file. When the goods are received, the file must also contain the material receipt and notice; or, if goods are rejected, the form or letter showing material rejected must be placed in this file, together with any and all other papers incident to this par- ticular purchase order, it being understood, however, that all correspondence and papers (including quotations on machinery and shop equipment), not connected, directly or indirectly, with the purchase order, are to be filed in the regular files under subject indexing. This will cover the purchasing order files both by number and by alphabet and in this way a central filing and mailing department can be establislied. The purchasing agent should have a small set of cards — one card for each different firm, from whom the company buys goods — on which will appear the various dates and order numbers for each different purchase made of that par- ticular firm. For instance, the card headed "Cleveland Twist Drill Co." might have on it 6/30, 125 ; 7/5, 272 ; 7/10, 396 ; 7/18, 987 ; each of which would indicate a different purchase order number and its date. By referring to the cards of this concern, all the papers from the "Cleveland Twist Drill Company" can be obtained relative to any purchases made from them. (See Form 7.) Purchase orders should be back-file referenced, i.e., if orders Nos. 1, 17, 27, 40, etc., have been placed with the Crucible Steel Company, order No. 40 should have in red ink in a circle in the upper right-hand corner, the number 27, which means that order 27 is the previous order given that company; and if order No. 40 is not the particular one sought, then order 27 will be looked at. Order 27 will have on it No. 17, etc. This method enables a clerk to find all purchase orders placed with a certain company by taking PURCHASING AND RECEIVING 53 note of the last order placed. By this means Information can be had as to the number of purchase orders placed with any one concern, and also as to the degree of regularity with which such purchases were made. Filing Material Receipt and Notice This receipt, as before stated, is made out in five copies by the receiving clerk, one copy of which is kept by him, one sent to the stores keeper, one to the purchasing agent, one to the planning department, and one to the stores recorder. When the purchasing agent receives this material receipt and notice, it is a signal for him to look up immedi- ately the invoice and to handle it in accordance with the in- structions which are given hereafter. As soon as the stores keeper receives his copy of ma- terial receipt and notice, it is a notification to him to prepare to receive the goods, physically or otherwise, and in many instances they should be rechecked by him. If the goods received have been specially ordered by anyone in the factory, his file will contain the general stores requisitions, and these goods should be immediately sent to fill such requisitions. The copy sent to the planning department should be destroyed after it has served its purpose, while the one to the stores recorder should be disposed of as previously indicated. Special Instructions for Handling Invoices All invoices, upon receipt, should go first to the account- ing department to be numbered and registered and then be immediately sent to the purchasing agent. The receiving of invoices in duplicate should be dis- couraged whenever it is possible. If a company operates several factories from one central point, however, it may be 54 UNIFIED ACCOUNTING FOR INDUSTRIALS necessary to have invoices in duplicate. If they are so re- ceived, one copy should immediately upon its receipt be stamped "duplicate" in large letters across its face. When the purchasing agent receives an invoice from a shipper, he must take his copies of the purchase order, pur- chase requisition, and material receipt and notice, and check Ihem against the invoice. If the price, quantity, and quality of the goods received are found to be correct, he should O K these in the proper places on the invoice, and immediately forward this invoice to the stores recorder who, as before stated, will recheck these papers, attach them to the invoice and immediately forward them to the accounting depart- ment. In the event of there being a difference in the price, quantity, or quality of the goods, the purchasing agent should make out a claim voucher, giving the exact quantity and quality of the goods received, also the amount of the claim, what it is for, and on whom it is made. He must attach this to the original invoice, and send it to the stores recorder. (See Form 8.) When the stores recorder receives an invoice with a claim voucher attached, he will enter in his Stores account the quantity of the goods received as designated by the material receipt and notice, check invoice accordingly, and if claim is for shortage of goods to be filled by subsequent shipment, he must send only the invoice to the accounting department. If this claim is for other than shortage, he will attach all of his papers and forward them to the ac- counting department as already described. When the accountant receives an invoice with a claim voucher chargeable to the consignor attached, he will deduct the amount of claim, in the deduction column, from the original invoice to the credit of the consignor, and charge the Stores account with the net quantity. If the claim PURCHASING AND RECEIVING 55 voucher is chargeable to a party other than the consignor, however, the accountant must then enter the amount of the original invoice to the credit of the consignor and charge the Stores account with same, and then make out a charge voucher to cover the amount of the claim, crediting stores, and charging the party designated by the purchasing agent for the amount of the claim. It can readily be seen that this not only allows for the immediate entry of material into stores, together with its price, but that there is no chance of paying the amount in full when there is a claim against the creditor. When the claim is allowed and a credit memorandum is received from the consignor, it must only be attached to the charge voucher; no entry of it is made, in the event of claim being made for a shortage in shipment, as the additional material sent at some subsequent date must have a new invoice. Upon advice from the consignor to the purchasing agent that goods have been back ordered, in whole or in part, or if for any other reason the purchasing agent wishes to cancel an order and does so, copies of this cancellation should be forwarded to the stores keeper, production department, and stores recorder who will forward his copies on file for that order to the accounting department, marking them "Balance Cancelled" and giving date. All freight or express bills presented must be checked with receiving clerk's copy of material receipt and notice, and O K'd by him after verifying each item. As the re- ceiving clerk thus verifies each item of freight, he will enter on his material receipt and notice sheet the date of his O K and the date of the freight bill. The receiving clerk must ordinarily O K the entire bill, if correct, before the freight bill can be passed for payment. The receiving clerk should be held strictly responsible r5 UNIFIED ACCOUNTING FOR INDUSTRIALS for all material received by him, and for freight and express items O K'd by him, i.e., as to consignments, weights, etc., and a regular audit of the freight bills with the stores records should be made as with all other departments. CHAPTER IV GENERAL STORES Their importance, their control, and their relation to inventories, production, and ac- counting, together with a classification for statistical purposes. CHAPTER IV GENERAL STORES The following is a brief outline of certain standardization work, including its nomenclature, that must be agreed upon or understood as a basis for factory operations, before going into more complete detail concerning actual instructions, specifications, etc., in connection with stores-keeping. Orders Classification of Orders Before undertaking to lay out the detail incident to planning and cost work in a factory, it becomes necessary, as a first step, to understand under just what conditions orders shall be issued; by what names; what relation they shall bear one to another ; and the kind of work covered by them. The following tabulation shows the names of orders that should be used in industrial work. Prefixing a letter to each order number will always indicate the nature of the order. By this means each kind of order can have its own serial number. (A) Contract or Sales Orders (B) Manufacturing Orders (C) Production Orders (D) Prorating Orders (E) Betterment Orders (F) Repair Orders (G) Stores Orders 59 6o UNIFIED ACCOUNTING FOR INDUSTRIALS These seven kinds of orders should cover anything and everything in a factory pertaining to labor, material, and ex- pense. (A) Contract or Sales Orders A "contract" or sales order is simply a means for regis- tering, by name and number, the whole quantity of some given contract which, if too large to be put through a factory in total, would be divided into several production orders. Or, again, if too small to be manufactured ecomically, the sales order w-ould be combined with several other sales orders into one production order, so as to provide a volume sufficiently large to justify a schedule. (See Chapter IX.) In the manufacture of such a product as rifles, for in- stance, sales orders would naturally be large, and must be divided into several production orders; first, because the bulk is too great to put through a factory in one order ; and second, because from a cost point of view information for control of the output from week to week and month to month would not be obtained often enough. In other words, on a contract for rifles that required a year or more to manu- facture there would not be a satisfactory control of factory operations during that period were it not divided up into orders sufficiently small to give full and complete costs fre- quently ; while a product like machine tools for instance — of which but one or two are sold at a time — might be made up in batches of twenty-five or fifty, either for stock or as a combination of sales orders, so as to get a sufficient volume on which to compute satisfactory costs. (B) Manufacturing Orders A "Manufacturing Order" is exactly like a contract order; simply being a means for registration and showing by this registration the divisions and quantities for proces- GENERAL STORES 6l sing purposes on which it is desirable or necessary to close out total manufacturing" costs under either one of two methods : 1. By applying overhead as well as labor and material costs to each component — perhaps also to each operation, 2. By applying overheads to each complete unit covered by a "Production Order." For simplicity, the latter is preferable; for accuracy and insurance purposes, the former is better, (C) Production Orders A "Production Order" is an order not only of registra- tion but also of issue; i.e., it is issued to a factory for the actual producing of something covered by a sales and manu- facturing order (except in a plant run under conditions whereby its product is all made for stock; in other words, manufactured to finished stores stock, from which the sales department would always draw goods). All sales orders are necessarily received from sales or executive department. All manufacturing orders are pre- scribed by a works manager, together with a schedule covering the same. All production orders are issued or pro- vided for by a production department, and must be in accordance with manufacturing orders and their schedules. Therefore, the production order for an individual piece or component would, in theory at least, be a sales order, say No. 1501; a manufacturing order, say No. 1; a pro- duction order, say No. 1 ; plus the component symbol, say "26-117," the whole presenting a symbology as follows: "1501-1-1-26-117" This would be the complete symbology for identifying an^y and everything in connection with a piece or component 62 UNIFIED ACCOUNTING FOR INDUSTRIALS with a sales order in which "1501" is the order from the executive office; "1," the order from the works manager to the production department; and "\," the order from the production department to the factory to make a certain piece in some definite way. Production orders are of several classes of varying purposes, as follows : 1. Processing Production Order 2. Assembling Production Order 3. Tools Stores Production Order 4. Prorating or Expense Production Order Before going further in connection with orders, an understanding should be had concerning the division in a product requiring different orders. A model of something is a final and complete expression of production. A model may consist of units, parts, and pieces. A unit is something that is operative in itself and sub- ject to usage on any one of several models; it consists of an assembly of parts and pieces. A part is an assembly of two or more pieces, in itself inoperative until assembled into a unit or model, and consists only of an assembly of pieces. A piece is an individual component processed in some definite form, which may be assembled into a part, into a unit, into a model, or into all three. For example, a rifle would be a model ; the lock mechan- ism would be a unit; and the barrel or the butt a part. Finally would come the individual pieces which are as- sembled into, or with, the foregoing. Therefore, a processing production order is issued to cover the making of individual pieces; and an assembling production order, for such things as constitute a part. These GENERAL STORES 63 are then closed out into component stores and an assembling production order issued for a unit, which might consist of two or more pieces or parts, and which would again be closed out into component stores and redrawn by a final assembling production order for the completion of the model. Again, tools that are manufactured in a tool room in large quantities, such as reamers, drills, cutters, screw- drivers, etc., are made under a stores production order, be- cause when completed this order will be closed and the tools charged to general stores, whence they are distributed to the factory and thus become absorbed into expense. (D) Prorating Orders In nearly all lines of manufacture there are certain materials used and certain work done which cannot be so figured as to be directly chargeable to an individual piece or component. By this is meant such things as plating, painting, enameling; or, in rifle manufacture, browning, heat-treating, hardening, etc. Therefore, it is proposed that for such items, "Prorating Orders" be issued, which will enable work of this character to be done for any one or for several manufacturing orders combined. Then the total expense of same for some timed period — in no instance longer than a month's output — would be prorated over the number of pieces done during that period. That is to say, if 15,000 pieces were heat-treated during a month, each component so treated would be charged with a pro rata amount of expense for the work, which would be in addition to the expense that was put upon it by the regular pro- duction order. In other words, this is a sort of standing order for all the work done by a certain operation, whether the operation covers a piece from one or from several pro- duction orders. If the operation on such work as this, however, is for 64 UNIFIED ACCOUNTING FOR INDUSTRIALS the same piece practically all the time, it would be con- sidered as an operation in the regular processing of the piece and would then come under a regular production order number. (E) Betterment Orders A "Betterment Order" is an order issued to a factory for the manufacture or installation of all items that increase the inventory of fixed or non-merchantable assets, or, in other words, investment assets — which consist of the plant and the things that are used in or by it in its operation. Betterment orders should be issued, for instance, for real estate additions and improvements; for the making of additions to buildings or building improvements; for the installation of all machinery; for power improvements or extensions, etc., etc., according to the classification sub- mitted below — which would be considered a standard classi- fication for such things; and for this reason assets are divided up into this classification because each item calls for a different percentage of depreciation, except real estate, which, of course, rarely ever depreciates but usually appre- ciates. It can be seen that this classification is laid out on the Dewey Decimal System plan so that a distribution by accounting machines, such as the "Powers," is possible. Therefore, it must be borne in mind that each subdivision must always be the same, for which the percentage of depreciation indicated would be written off. El Real Estate. No depreciation. E2 Buildings and Building Equipment E2.1 Buildings. 2 to 2y2'Jo per annum. E2.2 Building Equipment. 12 to 15%. E2.3 Electrical Service, outside of lighting, 15 to 20% per annum. GENERAL STORES 65 E3 Office Furniture and Equipment. 15 to 20% per annum. E4 Machinery and Tools. 7 3^ to 10% per annum. E5 Dies, Jigs, Fixtures, and Gages. 25 to 50% per annum, according to their character and usage. E6 Power Plant. 10% per annum. E7 Shop Fixtures and Fittings. 25% per annum. E8 Patents, Patterns, and Drawings E8.1 Patents, According to their life. E8.2 Patterns. 33 '/s to 100% per annum. E8.3 Drawings. According to their character. E9 Railroad and Railroad Equipment E9. 1 Railroad. 15% per annum. E9.2 Railroad Equipment. 20% per annum. This provides a symbology in which "E" denotes fixed investment or a "Betterment Order" ; the first figure indi- cating the class of betterment order, and the decimals indicating the subdivisions. Each of these nine classes can be extended to cover all the subdivisions which may be re» quired. Thus machinery and tools can be divided into: E4.1 Machines E4.2 Tools Machinery can be still further subdivided into planers, automatics, screw machines, profilers, etc., etc., if anything is to be accomplished by so doing. From the foregoing it is perfectly evident that there are j (1) for all improvements or betterments, a set of standing orders covered by "E" plus the number indicated; and (2) as repair orders can be indicated by "F," that for repairs, a similar set of standing orders are to be used under "F," plus the number indicated; and (3) that still another set of num- bers can be used to cover depreciations, so that for all 66 UNIFIED ACCOUNTING FOR INDUSTRIALS investments and repairs to same there will be no other orders of any kind issued. The entire arrangement is such that all is subject to accounting machine methods of distri- bution, and these same methods should be adhered to for all distributions required by a factory. Finally, it is to be understood in connection with all betterment orders that they should bear the same overhead or factory burden as manufacturing or production orders. (F) Repair Orders To repair anything is to restore it in some degree to its original condition; i.e., to recover a loss that has taken place due to usage, depreciation, etc. Based on this, in a modern method of accounting, reservations should be made for depreciation under such a combination of conditions that it is permissible to draw upon these reservations to pay for repairs. Otherwise there is a possibility of a big liability account being established which may, in part at least, be fictitious. In other words, if a certain sum of money is set aside to cover depreciations, and depreciations are recovered by the application of repairs, the money set aside for this purpose should be used to pay for the repairs, and not have, as is usual, a double expense thrust upon the business — one in the form of depreciation for replacements, and another for repairs. The point to be made here, however, is that the same classification as illustrated for "Assets," must be used for "Repair Orders" (F). Looked at from another point of view, it means that instead of having a large number of kinds of repair orders, they would be confined simply to a set of standing repair orders, classified exactly according to the asset classification of investments, and, as illustrated under "Betterments," be carried into as fine a classification as desired by simply adding figures on the decimal basis. GENERAL STORES 67 The old-fashioned standing order has become practically obsolete. There was a time when there were standing orders to cover such items as were not charged to Plant Assets, Plant Production, and Plant Repairs ; and these con- sisted of such items as window washing, shop lubrication, shop sweeping, shop trucking, watch and fire services, etc., etc., all of which are absorbed into assets by way of over- head charges put on production. In fact, all old methods of accounting employed a large number of standing orders, some of which related to labor, some to material, and some to a combination of labor and material. Most of them, however, upon close analysis, lacked any possibility of placing direct responsibility on any one for their variation from month to month and year to year. Later and newer accounting methods have entirely elimi- nated the old-fashioned standing order, and furthermore, all the elements of manufacture have been reduced to the three primes : 1. Labor 2. Material 3. Expense Therefore, all accounting work is so designed as to deal directly with these three items, and to do so a certain method of distribution must be adopted which will give the labor, material, and expenses of each department — at least monthly — divided into direct and indirect items. This has invariably been found to be of much more value for administrative action than was the old-fashioned standing order. (G) Stores Orders "Stores Orders" consist of orders placed in the factory for the manufacture of those items of which a maximum and 68 UNIFIED ACCOUNTING FOR INDUSTRIALS minimum quantity are supposed to be kept in stores. They have particular reference to small tools, such as drills, reamers, screw-drivers, taps, dies, etc., which are to be made up in quantity under a stores order and taken into stores as an asset and held there until distributed to the factory over properly signed requisitions. Some of these articles, such as screws, for instance, can be made up in one or two days' output in sufficient quantity to cover the requirements of a period of several weeks or months. This arrangement gives the stores keeper full opportunity for ordering anything that is carried in stores on a maximum or minimum basis, whether it is to be purchased outside or whether it is to be made in the factory. Stores-Keeping Stores No department in any manufacturing business contrib- utes more to its health or wealth than do the departments of stores-keeping, which are always three in number and sometimes four, as shown below : General stores, which cover all purchases of any kind whatsoever. Component stores, which cover all pieces and parts that have been completely processed. Finished stores, which cover all completed units or models ready for shipment. Shop stores, which cover sub-stores stations as distri- buting points for stores issued on a monthly supply basis. Requirements as to Stores Many plants undoubtedly run under what is known as "continuous manufacture." A contract for 240,000 units GENERAL STORES 69 would mean a contract order for that many. If these are to be made up in a year's time, they could be divided up into twelve manufacturing orders of 20,000 each. These manufacturing orders would then be divided again into production orders, i.e., a production order for each component required, and for each assembly required whereby components are assembled into a complete unit. Therefore, on a contract order, the purchasing agent would go to market for materials long in advance of actual manufactur- ing requirements and would make contracts for such materi- als under specified deliveries. From this it can readily be seen that if it takes 30 days to get material from the market, and 30 days to process the component from this material, orders for material will have to be placed at least 60 days (plus some factor of safety) in advance of the placing of a manufacturing order in a factory; consequently, all terminating dates on a schedule for purchases should be determined at least 90 days in advance of the final assembly dates, specifications for which should be furnished by the production department. It will usually be necessary to have nearly all productive material protected by reservations, and these reservations will be a very important factor in stores-keeping ; therefore, stores balance sheets have been provided to take care of this in detail. Routine of Stores-Keeping In order to understand how dependent accounting Is on a proper classification of orders, it is necessary to have a clear idea of what the fundamental basis of industrial stores- keeping and accounting is. All materials upon their receipt must be put into general stores — general stores being so broad in its scope as to cover everything that is purchased. Not only does it include 70 UNIFIED ACCOUNTING FOR INDUSTRIALS material for processing and supplies for operating, but also everything in the shape of equipment. In other words, if a new machine is bought it must first go into general stores (at least by way of record) and be held there in inventory until it is delivered to the factory over a properly signed requisition chargeable to a betterment order, to which will then be added the labor and materials used for installation, the completion of which will transfer the entire cost to another form of inventory. The same rule applies to any piece of furniture or office or shop equipment which may be bought, for it is only by thus passing everything through general stores and rendering a requisition in payment for it when it is drawn out, that a distribution of these stores can be made either to production orders, assets, or operating expense, and it is the only basis upon which an order department can maintain a control of orders and their proper distribution. In other words, materials after going into general stores are held there in inventory until they are requisitioned out for some production order, betterment order, repair order, or stores order; the requisition being used simply to credit "General Stores" and to charge the order. Thus all production, betterment, and stores orders become "Work in Progress." At the end of any month the total amount of the produc- tion and betterment orders completed are credited to "Work in Progress" and charged to Fixed Assets, Com- ponent Stores, or Finished Stores, as the case may be. That is to say, as material is drawn from general stores for any production or betterment order, it has added to it the labor and expenses incident to its processing operations, and is constantly held in inventory as "Work in Progress" by the use of requisitions and time tickets. Upon completion, the total cost of the order is credited to Work in Progress and charged to its proper classification. GENERAL STORES 71 By this relationship between orders, general stores, requisitions, and time tickets, protected by a proper system of names and numbers, a perpetual inventory in all stages of conversion between the purchase of the material and its transformation into something else is made possible. In this way all labor, material, and expense used in a factory are actually converted into tangible assets at the end of each and every month. Usually all the work connected with the keeping and recording of stores is placed under a general stores keeper and a stores recorder, whose duties and relations may be outlined briefly before going into stores-keeping in general. General Stores Keeper The attempt is often made to put the entire stores-keep- ing system under a production or planning department. Usually this is not very satisfactory, for the reason that the purchasing agent and the stores keeper have large problems in the handling of material entirely foreign to production, such as the buying and handling of all factory operating supplies and general office supplies, which are nearly always maintained on a maximum and minimum basis. These in- clude fuels, oils, waste, small tools, etc., and in addition thereto, equipment, furniture, fittings, stationery, catalogues, etc., and it must be borne in mind that all of these materials should be handled just as carefully as the productive materials. It is the physical storage, handling, and delivery of these materials that constitute the real work of a general stores keeper. To cover the requirements, the organization should be laid out in such a way that the general stores keeper and purchasing agent may work together as closely as possible ; that is, the general stores keeper should be directly respons- ible to the purchasing agent in so far as all general stores 72 UNIFIED ACCOUNTING FOR INDUSTRIALS (raw material) and their inventories are concerned, but should be under a works manager in everything pertaining to the physical conditions required in a plant for the storing or shelving of goods and for the physical methods to be employed for the delivery of goods to the various parts of the factory. Stores Recorder There are two methods by which a stores recorder can be governed in an organization — first, whereby the stores records or ledgers are controlled by the purchasing agent (which under ordinary circumstances is the usual way) ; and second, whereby the records and all work pertaining to them are controlled by a production department. As the general stores keeper should be at liberty to give most of his personal attention to the movement of stores as a physical requirement, there will have to be, in either case, a stores recorder to take care of all stores transactions by way of the stores ledger, to check purchase requisitions, to price general stores requisitions, to check invoices, and to make out purchase requisitions to cover maximum and mini- mum amounts. The undesirability of putting the stores ledgers and records in the charge of any other than the stores keeper and the purchasing agent, is again apparent here, for the simple reason that all non-productive materials and operat- ing supplies must be carried in exactly the same ledgers as productive material. However, as stores cannot be carried in one general stores room, but must of necessity be located at different points, the location of the stores recorder will have to be at some central point of operation, preferably in or adjacent to a production department, to which he can supply whatever information it may require. In addi- tion to this, the general stores keeper should have charge of GENERAL STORES 73 the receiving department and have under him a receiving clerk in charge of such department. By this method of organization, the purchasing depart- ment is held entirely responsible for the purchase of material, its dehvery into stores, its placing into a stores inventory account, and its final delivery to the factory for processing or usage. The responsibility in connection with the latter will be set forth later, but attention is here called to the fact that this method creates a complete unit of or- ganization in itself, a highly desirable thing to do if possible. Bureau of Censorship of Materials On the other hand, it is quite possible that it may be necessary in a plant of large size to have a "Bureau of Censorship" on materials, first, to cover purchasing, and, second, to cover withdrawals of materials from stores for usage ; in which case all requisitions for purchase which are or are not covered by a production order, betterment order, repair order, or maximum and minimum quantities, would have to be referred to the bureau of censorship for approval. This bureau of censorship would naturally be controlled by the production department. As all requisitions for the actual withdrawal of material from stores would be made out in this same department, it would be necessary to place in this department a stores recorder who would have charge of all stores transactions, as stated above. Under this system, foremen and all others having authority to do so, have to use a "request ticket," and this is converted into a general stores requisition by the stores recorder or his assistants. In so far as the accuracy of stores records are concerned, this plan may be as good as the other, but there would seem to be two undesirable things about it. First, the purchasing agent or stores keeper cannot be held responsible for the inventories of material which he has -4 UNIFIED ACCOUNTING FOR INDUSTRIALS under his charge, and, second, it would seem that a great deal of delay in getting requisitions filled for the factory might be occasioned. In other words, from an accounting point of view it would not make any difference; from an organization point of view and from a delivery point of view it might not work so well. Control of General Stores As has already been explained, materials are bought and passed into general stores and held there in inventory until they are requisitioned out for some production order, better- ment order, repair order, or standing order; a requisition being used to credit general stores and to charge the order. Thus all production and betterment orders become "Work in Progress." At the end of the month, the total amount of production and betterment orders completed is credited to "Work in Progress" and charged to Investment, Assets, Component Stores, or Finished Stores, as the case may be. Under this routine, as material is drawn from general stores for any production or betterment order, it has added to it the labor and expense incident to its processing opera- tions, and is constantly held in inventory by the use of requisitions, time tickets, etc., until the work upon it is completed; then credits, as cited above, are made and the total cost of the production order, when completed, is charged into Component Stores for all finished pieces or parts as may be required for stock, and into Finished Stores for all completed units. Then, Finished Stores is credited and Sales is charged for all goods shipped, after which the transactions become current bookkeeping. Therefore, from this it can readily be seen that it is absolutely necessary to keep control of materials by the proper use of requisitions, time-keeping tickets, and means for expense distribution, because the whole process is one by which all the material. GENERAL STORES 75 labor, and expense of a factory are converted into assets at the end of each month. From the above, it becomes apparent at once that, first, the stores keeper is the merchant of the plant ; second, that every requisition is a check given in payment for material ; third, that as in a banking business, a centralized clearing house must be organized to handle checks and get them cleared to their proper charge account. General Stores Record Theoretically, a stores record sheet has many functions. It is a record of aH material given out, and shows for what purpose it is given out, etc. ; it is a perpetual inventory of the quantities and the value of materials on hand at any given time, and a perpetual inventory of the quantity outstanding on orders and under reserve ; it is a means for pricing all requisitions calling for material; and, finally, it becomes a complete record of any and all variations in price, and furnishes chronological information as to quantities of material consumed for any given time. A thorough understanding of the means of recording the issue of material from stores into "Work in Progress" and znce versa may be derived from a consideration of the form of general stores record shown in Form 9, the headings of which are almost self-explanatory. It will be noticed that the heading of this sheet is made to show not maximum and minimum quantities (as is usual), but such an amount of material as will protect a factory's operation for whatever length of time it takes to get material from the market, taking into consideration res- ervations. Thus, the caption "When balance on hand, less reservation, is under , order ," means that no reservation can be considered available in consider- ing the low point at which to buy, and that when the ^6 UNIFIED ACCOUNTING FOR INDUSTRIALS quantity is down to a very low point additional quantities must be ordered up to some maximum point. If a unit of any kind is to be made at the rate of 3,000 per day, and it takes ten days to get stock after placing the order, the minimum inventory at the factory would be, under ordinary conditions of operation, sufhcient materials of all kinds for 30,000 units, and it would be the stores keeper's business to notify immediately the purchasing agent when the inventory on such material was down to the ordering point, as the 30,000 minimum would be practically all consumed by the time the new shipments were received. A factor of safety should be allowed w^hich would perhaps make material for 40,000 units the low point at which to re-order. At the top of the record sheet is also shown a description of each item — each item being on a separate sheet. The unit of measure by which the item is bought is given, as pounds, gallons, pieces, yards, etc., and immediately under this is shown the location of material as to building number, floor number, aisle number, and bin number. In this way the stores recorder will have absolute information as to the location of any and all kinds of material, and can quickly and easily find or check it over if it becomes necessary. Further, this gives the stores recorder absolute command of all stores, by record, and will enable him to show location on requisition, so that the stores keeper can send stores clerks or truckmen to the proper point for the drawing of material to be delivered. In a properly arranged stores-keeping department the entire layout of a floor space, aisles, bins, etc., should be represented by a drawing or diagram. This will greatly facilitate the work of the stores keeper, and simplify the breaking in of new clerks, stock men, etc., as they are taken into the employ of the company from time to time. GENERAL STORES 77 These stores record sheets must be Indexed under the classification mentioned hereafter for ready reference and handhng, as regards posting, etc. The stores recorder sliould be held absohitely responsible for the placing of his requisition for purchase or manufacture (the latter in case of items made by the factory and carried in stock, such as drills, reamers, taps, dies, etc.), but not for delays in pur- chasing or deliveries, provided his requisition has been given to the purchasing department or the production department in time. The first entry on the stores record sheet will be the inventory at the time the sheet is opened, under the "Received" column, showing the date of inventory, etc. ; following this, in the first column, "Ordered," will be en- tered the date, purchase order number, and quantity. Upon receipt of "Material Receipt and Notice" by stores record clerk, he will immediately enter the amount shown on same in the "Received" column of the stores record sheet, giving date, purchase order number, and quantity; checking his "Material Received" memorandum, purchase order and pur- chasing requisition at the same time. Upon receipt of in- voice, these three forms will be assembled with the invoice, and the unit price entered in its proper place, and all papers then forwarded to the accounting department. This opera- tion will be repeated for all items received. As fast as requisitions are received at the stores room and the material is delivered, the quantity, called for by the requisition will be entered in the "Issued" column of the stores record sheet, showing the requisition number and date on which the material was delivered, together with the quantity and unit price. At the same time that this is done, the unit price and amount will be extended on the requisition, and ahvays the balance of the quantity on hand must be entered in the "Balance" column. A column has been pro- ^8 UNIFIED ACCOUNTING FOR INDUSTRIALS vided showing "Reserved," so that no subsequent produc- tion order can be put into the factory demanding the same kind of material and obtain it, unless there is an excess of the amount reserved for the first production order. Under the "Reserved" caption the date and quantity of the reserve are entered, and under "For" will be shown the order number for which the material is reserved. As fast as the production order number is provided with this material, it will be en- tered in the "Issued" column, the same as any other material. Therefore, it can readily be seen that the amount available for any new production order will be the difference between the balance in stores and the total amount reserved. At the extreme right of the stores record sheet are pro- vided five columns for "Balances" ; the first column showing balance "On Order," the difference between the "Quantity" column of "Ordered" and "Received"; the second column showing balance "In Reserve," the difference between "Re- ceived" and red ink entries under "Issued" column ; the third column showing "Available," the difference between "In Reserve" and "On Hand in Stock" ; the fourth column show- ing, quantity "On Hand in Stock," the difference between "Received" and "Issued" ; and the fifth column, "Value on Hand," or inventory value of "On Hand in Stock." The unit price entered on the stores record must be the absolute cost, which means that all trade discounts must be deducted, and the net price per piece or quantity used, instead of the total purchase of any particular material. By this means this sheet becomes not only a stores record of goods received and given out, but also the standard price sheet for (he use of the purchasing agent and the source from which the stores recorder enters on the requisition for purchase the last price paid and other data required. A ten days' cash discount, etc., should never be taken off the figures as shown on the invoices, as this form of discount is an earning of GENERAL STORES 79 the financial department and should be credited to its ad- ministration and not taken into consideration in connection with the cost of production. The price to be used for any costing or inventory pur- poses should always be the last purchase price from any regular source of supply. If, however, material has been purchased in large quantity, or of special quality or price, an effort should be made by the record clerk to carry these prices with the quantity so purchased. The particular thing to which attention should be called, in connection with the keeping of stores and stores records, is the importance of keeping these records posted up to date — up to the minute — as to the quantity received, quan- tity given out, balance on hand, and prices. The value of this cannot be overestimated, as these records become a bureau of information for several purposes; first, for the purchasing agent; second, for the planning department; third, for the cost department in making costs and distribu- tions (as on these sheets every requisition is priced for the amount of material drawn over the requisition). They give a chronological history of each item of stores, and of the quantities and various kinds of materials or supplies used, so that in a very short time the stores keeper and purchasing agent can establish from this history absolutely correct maxi- mum and minimum quantities, and thus reduce the cost of investment for material to a minimum. An examination oi these stores record sheets will always indicate to the purchasing agent or works manager how well purchases are being made and how much unnecessary investment may have been made in any items by purchasing in too large quantities. Finally, the perpetual inventory is kept checked against the controlling account by means of these stores records. From the foregoing it can be seen what an all-important So UNIFIED ACCOUNTING FOR INDUSTRIALS proposition the keeping of the stores records is, and particu- larly the keeping of these records posted accurately and right up to date, and with due consideration for reservation. Classification of General Stores There are two prime classifications into which general stores should be divided, for statistical and indexing reasons : (1) Office Materials, (2) Factory Materials. A com- plete classification for accounting and general purposes is given in the stores ledger shown in Form 95. Factory materials for such purposes are divided into four classes as follows: (a) Operating Supplies (b) Manufacturing Supplies (c) Manufacturing Materials (d) Equipment This classification is not used for keeping stores or for accounting work, but is used for indexing purposes; and also provides a means whereby statistics can be obtained at any time regarding the amounts of such materials used. These statistics are very valuable because of the fact that contracts are often made and prices obtained based on the quantities consumed of any particular commodity, and a little adding machine work on the stores records in connec- tion with this classification will always reveal this for either statistical or purchasing purposes. In order to make this classification perfectly clear, the kinds of items that would go into them are given below. 1. Office Materials — Classification These consist of any and all kinds of supplies for office work, for recording and accounting work, advertising GENERAL STORES 8l matter, etc. This kind of material should be classified on the indexes for stores-keeping about as follows: Advertising Matter Ink Wells Bands, Rubber Letterheads Baskets, Waste Pads, Scribbling Blotting Paper Paste Brushes, Typewriter Pencils Carbon Paper Punches Clips Pen Holders Copy Paper Pens Envelopes Pins Erasers, Pencil Ribbons, Typewriter Erasers, Typewriter Rulers Forms, Cards Second Sheets Forms, Loose-Leaf Shorthand Books Forms, Printed Stamp Pads Inks, Stamping Trays, Letter Inks, Writing Twine, etc. 2. Factory Materials — Classification These, as stated above, are divided into four classes for indexing purposes only, the first of which is: (a) Operating Supplies. These consist of all such supplies as are used for operating, or making repairs to the plant or to the machinery in the plant, and will consist of about such a classification of items as given below, although it must be borne in mind that there are items in this classi- fication that might be used as productive material. Materials Asbestos Brooms Babbitt Brushes, Air Belting Brushes, Motor 82 UNIFIED ACCOUNTING FOR INDUSTRIALS Carbon Packing Compounds Piping Electrical Supplies Plumbing Supplies Emery Cloth and Paper Potash Excelsior Rivets Fuels Rope Gaskets Rubber Glass Sandpaper Glue Soap Inks, Office Tin Iron, Galvanized Toilet Paper Leather, Lace Twine Nails Waste Oil Cans Wax Oils Wire Tools — Si iiALL AND Hand Bits Handles Checks Jigs Chisels Knives Dies Miscellaneous Drills Soldering Irons Emery Wheels Stones Files Torches Hammers Wrenches (b) Manufacturing Supplies. These will consist of all kinds of material that are used in the product made for sale, and measured out in quantities in such a way as not to be chargeable to any specific piece, part, or unit, for the reasons that it would be almost impossible to measure the exact quantity used in or upon any individual part. This kind of stores is often drawn out in bulk, such quantities being used as are required, and the remainder returned to stores on a GENERAL STORES 83 credit memorandum ; for it is impossible in many instances to specify the exact amount of material needed. The fol- lowing items indicate the nature of the articles that go into this classification: Alcohol, Spirits Screws, Machine Alcohol, Wood Shellac Oil Tape Paints etc. Putty (c) Manufacturing Materials. These consist of all materials which are used in the actual product made for sale, and which are charged directly to piece, part, unit, etc., or to a production order in its entirety. Properly speaking, both manufacturing supplies and materials are one and the same thing; but the reason for recommending a subdivision of these two is that it is neces- sary to exercise a great deal more care with manufacturing supplies than it is with manufacturing materials in issuing them to the factory, since the exact quantity of the former required for a given production order is frequently not specified or limited. (d) Equipment. For indexing purposes, this consists of all such equipment and machinery as is bought for the plant, and not, as yet, charged out to the plant under a betterment order. Classification of General Stores — For Stores-Indexing It is almost impossible to provide at the start every item of classification that will be required ; but a general scheme should be adopted which may be added to from time to time as classifications for inventory become necessary. It is preferable to classify primarily under the kinds of materials used, for two reasons : it makes the handling of the stores 84 UNIFIED ACCOUNTING FOR INDUSTRIALS record sheets much more rapid, and at the same time it gives a statement every month of the consumption of the various kinds of materials that are used. As before stated, general stores are divided into two prime classifications: (1) office materials, and (2) factory materials, which are the same for both stores-indexing and statistical purposes. The subdivisions of these two classes are as given below: Office Materials. Subdivision same as already given. (See pages 80, 81.) Factory Materials. For purposes of stores-indexing, these materials should be classified about as follows, ac- cording to the kind of material and the items made of that material : I. Brass and Bronze Castings Screws Cocks Valves Cups, Grease Washers Cups, Oil Wire Sheet Miscellaneous Rod II. Compounds Commutator Polishing Cutting Miscellaneous DriHing III. Copper Sheet Washers Tubing Castings Wire Miscellaneous Rivets GENERAL STORES 85 IV. Emery Cloth Wheels Powder Miscellaneous V. Fibre Rings Gaskets Disks Miscellaneous VI. Fuel Coal VII. Glass Disks Window Tubes Miscellaneous* VIII. Iron Bar Sheets Bolts Screws Castings, Gray Tubes Castings, Malleable Washers Forgings Wire Nails Miscellaneous Rivets IX. Steel Shafting Tool Sheet Tubing Bar X. Lumber Boards Timber Planking Miscellaneous XI. Oils and Grease ' Lubricating Oils Greases 86 UNIFIED ACCOUNTING FOR INDUSTRIALS XII. Packing Asbestos Metallic Gaskets Wick Hemp Miscellaneous XIII. Paper Books Stationery Catalogues Wrapping Circulars Sand Drawing Miscellaneous Printed 'Form , XIV. Rubber Diaphragms Seatings Gaskets Sheet Hose Tubing Rings Washers XV. Leather Belting Washers Lace Miscellaneous The Issuing of Material from Stores General Stores Requisitions Form 10 is to be used for the purpose of obtaining material and supplies from stores, as no items of whatso- ever nature bought by the company should be issued by the stores keeper except over this form properly signed. The production department will issue all requisitions for materials needed for regular production orders, but not always for supplies for operating the plant. The requisition must, under all circumstances, show the order number to which the material is to be charged, as well as the number of the department which draws the material. Where materials for GENERAL STORES 87 operating supplies, etc., are drawn, which are not covered by any production, betterment, repair, or standing order number, the requisition must, without exception, show the department drawing the material and must be properly signed by the head of that department. Under no circum- stances can the head of one department use his requisition to draw material from another department, or from the inspectors; through general stores only will it be honored. In every instance the quantity and kind of material must be plainly set forth upon the requisition as follows : 1. Material, symbol, and number of requisition. 2. Charge number or order number which is entered against the proper class of order as shown on the requisition. The symbols shown thereon desig- nate the following classes of orders : (A) Contract or Sales Orders (B) Manufacturing Orders (C) Production Orders (D) Prorating Orders (E) Betterment Orders (F) Repair Orders (G) Stores Orders 3. The quantity designated and a clear description of the article. 4. The department to which delivery is to be made and the time when delivery is required. 5. The signature of a duly authorized party. 6. The date on which made out. Exceptions may be made to this rule in the case of the manager and any superintendent, by allowing them to use their respective pads, which should be especially assigned to them by a key number, as they find it necessary. When this is done the requisition must be O K'd by the superin- 88 UNIFIED ACCOUNTING FOR INDUSTRIALS tendent, the department for which the material is drawn properly shown, and a credit memorandum made out in favor of the department from which the material was taken, and this must be attached to the requisition. It must be borne in mind, as previously stated, that the stores keeper is the merchant of the plant, that everything bought by the factory is put into his custody to be sold by him to the various departments, and that these requisitions are nothing more or less than checks made out and signed as payment for such items as are drawn. Consequently, in any instances where the requisition is not properly made out and all the necessary information given, the stores keeper must refuse to honor it. It is essential that the stores keeper should bear in mind that his department must be conducted as an absolutely independent business ; he buys goods over his purchase re- quisition, and sells these goods to the factory over its general stores requisitions. Every night his stock should be in balance, and, if it is not, he is to be held strictly accountable. In large plants it is usual, as before stated, to have a chart called "Stores Location Chart," so that the stores recorder can accurately route each requisition by entering this information in the space provided on the form. It is not recommended that these requisitions be made out in duplicate. The stores recorder will be either located in, or adjacent to, the planning department. All requisitions for production material will be accompanied by a routing tag which should be attached by the stores keeper to each lot of material called for by a requisition. On all other materials, such as operating supplies, etc., which might be requisitioned direct by department heads, the stores keeper should put a routing tag on the material to its proper destination which, of course, will be indicated on the requisi- GENERAL STORES 89 tion itself. It is a much safer way to route material than it is to make dupHcate requisitions which cannot be fastened or tied to the material in any convenient way. Stores Credit Memorandum Form 11 is to be used by all heads of departments for crediting any department with materials drawn from stores which it cannot or does not use, and which are returned to stores. It must be borne in mind that all material drawn over a requisition is charged up to its proper order or account number immediately after it is taken from the stores depart- ment, and if subsequent work or operations show too much material has been drawn, or defects are discovered in the material, this form is used to give a credit to the job. For this purpose it is immediately sent to the stores keeper, together with the surplus or rejected materials. Unless the material accompanies this credit memorandum, the stores keeper will not accept it, for he must get his material back into stores before he can apply the credit. The credit memorandum must be signed by the planning department, or a department head authorized to do so, and also by the stores keeper, before it is turned over to the stores recorder, where the material must be priced exactly the same as in the requisition, be entered on the received side of the stores record, and, under "From Whom," the production order number be entered in red ink. This stores credit memorandum is of as much importance in the handling of stores as is the requisition, these two kinds of forms constituting the debits and credits in so far as general stores-keeping and the factory are concerned. For example, if 100 bolts are drawn out of general stores for a production order and 10 of them are found defective, 10 more bolts will be drawn out on another requisition ac- companied by a credit memorandum for 10 bolts, and the 90 UNIFIED ACCOUNTING FOR INDUSTRIALS 10 bolts drawn out on the second requisition will be charged off by the record clerk to either "Scrap" or "Defective Pieces," so that by this means the balance of his stores record sheets will always check his stock, and at the same time dispose of any defective material. Again, the tool room might draw out on requisition a dozen 12" flat files. Immediately afterwards another fore- man might present a requisition for these files, and, there not being any in stock, he might be given six of the files that had been taken out by the tool room. In such case the six files would be passed back into general stores from the tool room by a credit memorandum, and the requisition from the other foreman changed to six and turned into stores; thus leaving six files charged to each department. It must be borne in mind, however, that these transactions must not take place between departments, but through the stores de- partment as a clearing house. These stores requisitions and credit memoranda can both be used in conjunction with component stores in the same way as they are with general stores, if desired, but it is much better to use for this purpose a combined form headed "Component Stores Requisition and Credit" but otherwise bearing the same data. CHAPTER V COMPONENT AND FINISHED STORES Showing how they differ from general stores both in character and their method of record; together with a discussion of their inven- toried values, their control, and their relation to accounting. CHAPTER V COMPONENT AND FINISHED STORES Nature of Component and Finished Stores When material is issued to the factory for the manu- facture of pieces or parts, it is charged to a production order covering same; and the amount of material, as well as the labor on this production order, is charged up to a controlling account called "Work in Progress," where it remains until the entire production order is completed. When the pro- duction order is finished, "Work in Progress" account is credited, and "Component Stores" is charged. Here the item remains in inventory as "Component Stores" until withdrawn again for assembling, where it will be charged against "Work in Progress" until this assembling produc- tion order is completed, when "Work in Progress" will again be credited and "Finished Stores" charged. Here it will remain until sold, when "Finished Stores" will be credited and "Sales" charged. In this way the controlling accounts give the summaries of perpetual inventories, as it can readily be seen that at the end of the month any uncom- pleted orders must necessarily be in "Work in Progress" and all completed orders must be in either Component or Finished Stores. Now, it should be borne in mind that no items other than those processed by the factory itself should be included in the classification of "Component Stores" or "Finished Stores," for if this is done there is no check on inventory records as related to production orders, or no distribution 93 94 UNIFIED ACCOUNTING FOR INDUSTRIALS of a proper amount of overhead to production orders. There- fore, it is worth while to say again that such things as screws, nails, bolts, wire, or any finished parts bought out- side, do not, under any circumstances, become identified with component or finished stores records ; they are simply "Gen- eral Stores." Even if parts for a unit or model of any kind should be bought, they would be general stores until drawn into the factory by some production order, which would convert them into "Work in Progress." Component Stores Component stores do not include any component parts or pieces in progress, and, until a piece or part is finished, it is still "Work in Progress." When, however, this piece or part is finished and in such shape as to be carried in stock for assembling purposes, it then becomes "Component Stores." Therefore, these component stores bear no rela- tion to general stores or to finished stores, simply being a necessary transformation convenience in accounting for factory operations. Component stores should be directly in charge of the production department and be replenished and drawn on in accordance with instructions issued by this department to the factory for making up finished units or models as called for by some schedule or schedules. As component stores are the result of having processed certain pieces and parts on some particular production order, they must be costed out on a separate production order in order to get the final cost of the different units in which they may be used. This method of procedure is carried still further for the reason that costs must be divided not only into units, but into parts of units ; and parts, into pieces and operations on these pieces and parts. Therefore, a manufacturing order calling for the production of any given unit or number of COMPONENT AND FINISHED STORES gc units is converted into production orders for the various parts and pieces required. The principal reason for this procedure is on account of sub-assembly; one example of which might be the lock mechanism of a rifle. This is composed of a certain number of pieces, which, when assembled into the lock mechanism, constitute a unit, inasmuch as it can be assembled and be- come operative independent of the model upon which it goes and, under certain circumstances, may be used on several models of rifles. Therefore, the pieces that make up this part should be assembled into it under a production order for assembling separate from the one covering the general assembly of rifles. Component Stores Record The "Component Stores Record" (Form 13) is to component stores exactly what the "General Stores Record" is to general stores; viz., a record of all pieces and parts processed in a factory, taken into stores, and then delivered to assembly orders. It shows also inventory values of com- ponent stores whenever it is necessary to have such informa- tion. The entries in the component stores record are similar to those found in the general stores record, and likewise are governed to a certain extent by maximum and minimum amounts. To illustrate this point, if a sales department were re- quiring, say, 30 engines a day of a particular model, the minimum inventory of that engine in finished stores would be determined by whatever length of tim.e it takes the factory to assemble that kind of an engine. If this time were 10 days, the minimum inventory on finished stores would be 300 engines. To go a step further, if four of a particular piece were required to an engine and 30 days were necessary to get 96 UNIFIED ACCOUNTING FOR INDUSTRIALS the piece throug-h the factory, then the minimum in com- ponent stores would be four times 30 for each day, and for '30 days, 30 times this number, or 3,600 pieces. This same comparison would apply to all articles of manufacture, such as rifles or similar weapons, wherein a complete model is composed of an assembly of several parts, some of which are duplicate parts. When any finished pieces or parts are received in stores from "Work in Progress" in the factory, they should always be accompanied by a tracing tag, showing production order number, lot number, and net quantity received. As soon as it is received by the stores keeper, he should enter on this tracing tag the actual count of the goods received, date, and sign same, and then turn it over to the stores recorder who will immediately post to his stores record under "Re- ceived" the quantity specified, with the order number upon which it has been made. This material will usually be received in the stores as only a part of some production order; that is to say, there may be a production order in the factory for 10,000 pieces, and these may come into component stores in lots of 2,000 or 3,000. The entries for such receipts must be made in the column captioned "Received on Unfinished Order," for the reason that goods received in instalments in this way have not as yet been costed out, and consequently must be held in this column until the cost is known, which will be upon the completion of the production order. When pieces on uncompleted orders are entered in the column "Received on Unfinished Orders," the quantity is also added to the balance in the column headed "Balance on Hand — Unfinished Orders," given on the outside. It may be that several instalments of finished parts or units will be received into component stores before the entire order is completed ; but, as soon as the total order and cost COMPONENT AND FINISHED STORES 97 of the order is received, the total quantity made on the order is extended to the column "On Hand — Component Stores," and the cost price is entered as above. When the stores recorder receives a requisition calling for component stores and these have been delivered, he will enter in the "Issued" column the date of issue, order num- ber for which the material is to be used, together with the quantity. The amount is then extended to "Balance on Hand — Component Stores" and the inventory value is then carried out at once. In the event of its being necessary to give out component stores that have been received on an unfinished order, the order number and the quantity are entered in exactly the same manner as above, and the quantity is deducted from the "Balance on Unfinished Orders," as there is no balance in "Component Stores" ; for, as stated above, although the goods may be received into the component stores department in instalments from some production order, they cannot become "Component Stores" as a matter of record, but will remain "Work in Progress" until the costs are ascertained and closed out. It may be necessary at times to draw from both "Balance in Component Stores" and "Balance on Unfinished Orders." To illustrate this, suppose a requisition calls for 3,000 parts and there are 1,000 parts in "Balance in Component Stores," while there are 4,000 in "Balance on Unfinished Orders." Obviously, all there are of component stores, which is 1,000, will be taken, and the difference must come out of the "Bal- ance on Unfinished Orders" ; and, if it becomes necessary to price all that are drawn out, the price for the number taken from the "Balance on Unfinished Orders" must be the last cost price, but this should never be resorted to except for special purposes. When costs of any parts which are carried in "Balance 98 UNIFIED ACCOUNTING FOR INDUSTRIALS on Unfinished Orders" are received, the quantity should then be transferred to "Balance in Component Stores," to- gether with unit prices, total values, etc. Controlling Account for Component Stores In the controlling accounts of a company, there should be an account which governs "Component Stores" ; and the aggregate inventory value, as shown by the component stores record, should at any time practically agree with the controlling account, from which it will be noted that a check is thus kept on the inventory from two separate and inde- pendent sources. In first establishing any such inventory, conditions may be met which will make it almost prohibitive to maintain a minimum inventory on account of the demand for parts for assembling purposes. Therefore, it may become necessary to draw a large part of assembling requirements from com- ponent stores on unfinished orders. In order to maintain a controlling account properly, and have the monthly balance sheet a true interpretation of in- ventory conditions governing component stores, the stores recorder, at the end of each month, should draw off from his records all parts issued from stores on unfinished orders and enter the same on the component stores record in red ink under the column "Balance on Hand — Component Stores." This red ink balance will indicate a delivery to component stores, which, in so far as regular records are concerned, is not yet recorded as received in component stores, and will not be so recorded until the entire production order is com- pleted. The stores recorder should also draw off, at the end of each month, all finished stores issued as unfinished orders. A memorandum entry should in both cases be shown in red ink on the monthly balance sheets, but must not be actually entered on the balance sheets of private COMPONENT AND FINISHED STORES gg ledger accounts, as would be the case where a production order was completed and the entire cost charged to stores and credited to "Work in Progress." The purpose here is to create temporarily a credit to "Work in Progress" of such items as have been used in some other form of inventory. Otherwise, any units finished on an uncompleted assembly production order that were sold and shipped would still be in the "Work in Progress" inventory, and also in the accounts receivable, thus creating double value on inventory as a whole for such items. What has been said above as regards unfinished balance, is absolutely necessary in connection with the keeping of finished stores ; but in connection with component stores, the regular form of general stores record could be used, by sacrificing accuracy and always using last cost price obtained on issue of any component stores, making a new price when- ever a production order was closed out. Finished Stores Record The keeping of this record (Form 14) is identical with that of component stores, inasmuch as all the receipts from production orders are entered in the "Received" column, and everything given out on a shipping order (instead of a requisition or a production order) is entered under "Issued." In the issuing of shipping orders, two copies should always be given to the shipping clerk, one a shipping memo- randum, returnable to the accounting department for billing, and the other a shipping memorandum to accompany the shipment to the consignee. These are the only papers he should have for the shipment of goods. On the shipping memorandum returnable to the account- ing department, provision should be made for the entry of the cost of all the items shipped on finished stores, as these figures are necessary for making a sales analysis. CHAPTER VI STORES— SPECIAL FEATURES Illustrating forms to be used as a check on materials drawn against orders, and explain- ing in detail the stores keeper's responsibili- ties in ordering goods made in the factory, and his procedure in disposing of returned goods. CHAPTER VI STORES— SPECIAL FEATURES Assembly Requisition Duplicate requisitions are used in requisitioning ma- terial for assembly purposes. One, a blue sheet, for the total list of material required to cover specified lots on a given production order, will be filled in, in the first two columns only, showing the number of pieces or parts required, and the piece or part number, together with the date and pro- duction order or lot number at the top. (See Form 15.) The assembly requisition, filled in as described, is turned over to the stores keeper, who immediately proceeds to fill the requisition. Owing to low balances on hand in stores, however, he may frequently be unable to make complete delivery of all the parts called for. Therefore, the duplicate of the assembly requisition, a pink copy, has been pro- vided to take care of these "Shorts." As soon as the stores keeper gets out and delivers to the department requiring it, what material is available, he enters under "Delivery" on the blue sheet the date and quantity delivered. When the sheet or sheets covered by this requisition are thus filled out, the stores keeper checks on the pink sheet the quantities of each part still undelivered, as shown by the blue sheet. The following day, the pink sheet is gone over, the items which are undelivered balanced, if possible, and delivered; any quantity so delivered will be entered on the right side of the requisition, and the balance still unfilled will be trans- ferred to another pink sheet for the third day. This will be carried on from sheet to sheet, from day to day, until the 103 104 UNIFIED ACCOUNTING FOR INDUSTRIALS total assembly requisition has been completed. In this way, the stores keeper is made responsible for looking after the complete filling of the requisition after it has once been given to him in its entirety. The reason for this procedure is that all requisitions must be turned in to the record clerk each day, so that the stores account may be kept up to date, and the distributions made to production orders and departments, and not held up until the full amounts of various parts have been de- livered. Production Order Distribution of Material The production order distribution of material (Form 16) is a new form which has been provided to take care of the distribution of material to both production orders and departments, and also to give a daily check on the additional amount of material allowable to be drawn on any production order. The clerk who has charge of the record should work alongside the clerk in charge of the general and component stores records in the handling and posting of requisitions coming into the stores keeper's office. These two clerks should handle them jointly, as described hereafter. A pro- duction order distribution of material sheet, or sheets, should be opened for each production order number, and should then be filed in a binder in the order of issue. The stores clerk is provided with a complete set of pieces, parts, and unit key cards, which show in detail the kinds and quantity of material required to make any one piece, part, or unit. As soon as the stores keeper receives his copy of a pro- duction order from the planning department, the production record clerk immediately opens up a sheet for this produc- tion order number, showing the quantity required, piece STORES— SPECIAL FEATURES 105 number, and order number. He then turns to his key cards and ascertains the amount of material required per piece, and opens up a column on this distribution sheet for each kind or size of material required to manufacture the item called for, inserting the name of the material, the total requirements for the production order, etc., and he is then ready to receive requisitions against the production order. No material whatever should be delivered until the stores keeper's copy of the production order has been received, and this production order material distribution sheet has been opened. This production order distribution sheet will also answer for the distribution of material to departments, thus saving the entire time previously taken in the posting of requisitions to departments separate from the production order. This combination of posting to production orders and depart- ments will be accomplished in the following manner: When the first requisition for material chargeable to a production order comes in and is posted on this production order material sheet, the department which draws the ma- terial should be entered just above the words "General" or "Semi-Finished Stores" (which is the same as "Component Stores"), the classification of material showing just below. As each kind of material on any production order will al- ways be drawn by the same department, the monthly total of the material drawn, in any one column, may be recapitu- lated from that column to the "Recapitulation of Material to Department." Thus the posting to production orders ,will be all that is necessary to get a departmental distribu- tion as well as the classification of material used by each department. Moreover, it will not be necessary to figure the extension of the individual requisitions going through, which will save a great deal of time. This will be properly taken care of by Io6 UNIFIED ACCOUNTING FOR INDUSTRIALS the footing of these pages at the end of the month, when closing the production order for posting to the production and betterment order record ; that is, the unit price will be shown for each requisition drawn, but the extension is made on the monthly totr.l drawn instead of on each individual requisition. These last two features, the combining of the depart- mental and classification of material posting on the same sheet with the production order distribution, and the extend- ing of the requisitions only by the monthly total drawn, will prove a great saving of time in the handling of this record. Of course, if the unit price shows any change, it may require two or more different extensions for the month, but, as a usual thing, the unit price will be the same during any one month. Assembly Production Order Material Distribution The "Assembly Production Order Material Distribu- tion" form has been provided to take care of the distribution of material on assembly production orders in a way similar to that in which the production order distribution takes care of the distribution of material on production orders for pieces and parts. (See Form 17.) At the time a production order is issued by the schedule clerk and a lot is started, this sheet will be typewritten from the unit key cards by the order department, it being a copy of the assembly requisition. This sheet shows the produc- tion order number and the department number drawing the material, the quantity required, part or unit number, and part or unit name. At the time this sheet is made out, the first two columns only are filled in, showing the number of pieces required of each piece or part, and the piece or part number; it thus constitutes r. bill of material for the lot specified on the production order. As soon as this is made STORES— SPECIAL FEATURES 107 out, the original copy, being a requisition, is forwarded to the foreman of the department who turns it over to the stores keeper as soon as he is ready to receive the material. The assembly sheet is turned over to the distribution clerk in the stores keeper's office, who inserts it in his binder of material distribution as an authorization to deliver the quantity of goods specified. As assembly requisitions and the "Short" list of the same are turned in daily by the stores keeper, the items delivered on them are posted into the four ''Delivered" columns on this sheet, each time show- ing "Date," "Quantity Delivered," and "Unit Price" ; this entry being made at the same time that the stores record clerk makes the credit entry on the stores record, giving the distribution clerk the unit price. The extensions are not made on these individual de- liveries, as this is unnecessary, the assembly production order material distribution sheet being the first and final distribution of this material, both to department and pro- duction order. The unit price is provided in each column to cover cases where it may have been changed during the life of the production order. When the total pieces on any part are delivered, the total quantity will be extended in the "Total Quantity" column, and the extension made and entered in the "Total Amount" column, and the material classification entered in the last column. As soon as the production order is completed, this form will be closed out and filed in the finished order binder, after having been extended, and the totals inserted on the copy of the production order, which is turned in to the dis- tribution department. Extensions All extensions on the material issued on production orders should be made by means of a mechanical calculator Io8 UNIFIED ACCOUNTING FOR INDUSTRIALS at the time the production order is complete(^ thus saving the time of the clerk, who posts only the quantities, and greatly expediting the work of closing up production 'ders, as well as saving a large amount of time in han 'ling the distribution of the requisitions through not extending each individual requisition. Daily Report of Stores Balance The stores record clerk should draw ofif, at the close of each day, a recapitulation of the balances on hand of all manufacturing materials in general stores, and of all semi- finished and finished stores. This balance sheet must be made out in triplicate, one copy being sent to the works manager, one copy to the purchasing agent, and one copy to the planning and production department. Eventually, when these daily balance sheets become thoroughly ref- lated, the use of the stores clerk's order described below may be done away with; for this balance sheet in the hands of the planning department, together with the report of finished parts received in stores, from tracing tags, will provide full information as to starti ig operations for the manufac- ture of the parts nearing minimum, so that the reaching minimum will be readily anticipated, and the customary procedure of crying "Short" will become a thing of the past. Objects of Stores-Keeping From the foregoing it can easily be seen that four great objects in keeping stores are : 1. To maintain a perpetual inventory. 2. To prevent the use of material without its being ac- counted for, or without authorization. 3. To prevent unnecessary investment in material, by a STORES— SPECIAL FEATURES IOQ proper specifying- of maximum and minimum amounts. 4. The manufacture of materials on a balance schedule basis in an economical manner, by the working together of the order and stores departments. Stores Keeper's and Stores Clerk's Orders As the stores keeper has full control of maximum and minimum amounts in stores, the responsibility is his, of course, for maintaining these amounts. In case of general stores, where the stock is bought, he should make out a regular requisition for purchase; but in the case of com- ponent stores or finished stores, where any maximum or minimum amounts have been established, he should use a stores clerk's order, as a requisition to have such parts made up ; and as the maximum amount for any item is an authority for the manufacturing of such items when it is brought down to minimum, the stores clerk's order to manu- facture will be turned over to the order clerk for his guid- ance in starting the work on the parts required. This order (Form 18) is made out in duplicate by the stores clerk ; one copy remains with him, and the other goes to the schedule clerk in the production department. As soon as this is received, it will be handled by him in exactly the same w^ay as any other production order, by the issuing of the necessary production order for the manufacture of the item in accordance with the production order method in use. The rule governing the issuance of these orders by the stores clerk is that he should never issue an order (except in special instances) until the stock is reduced to the min- imum, and the "Amount on Hand" must always be shown opposite the space provided for in the stores clerk's order. One order may cover several different items, but each item no UNIFIED ACCOUNTING FOR INDUSTRIALS must be covered by a separate production order on the part of the production department. Goods Returned Memorandum Goods that have been sent out of a factory and returned, cannot be taken back into stock until some special considera- tion has been given them. Therefore, for this purpose, a "Goods Returned to Us Memorandum" (Form 19) has been designed on which may be entered the receipt of all goods of any nature whatsoever that are returned, whether they are returned for repairs, non-acceptance, or for any other reason. This form is made out in triplicate; the white copy is kept by the receiving clerk; the second copy (pink) is immediately sent to the stores department; and the third copy (blue) is sent to the sales department. As all goods returned are usually a question of sales, the sales depart- ment must first decide what is to be done with the returned goods. It will then write upon this form such instruc- tions as its correspondence indicates is necessary, whether the returned goods are for repairs or for acceptance back into stock. If for repairs, the sales department immediately fills out one of the copies and forwards it to the order depart- ment to make the repairs, entering the repair order into sales the same as any other order. If the goods are to be taken back into stock, the copy will be so marked, and one copy of the receipt is returned to the stores keeper, who will act according to the instructions received thereon. All information called for on this form must be filled out by the sales department and shipping department, and where a credit is to be given it must be so stated. As soon as all this information has been obtained, the third copy (blue), held by the sales department, must be signed by the manager and sent to the accounting department. STORES— SPECIAL FEATURES m If repairs are to be made, the copy to the shop super- intendent means that a production order must be made out to cover the repairs ; and whether it is for a customer or to go into stock must be clearly indicated. In other words, the whole question of returned goods is, first, if they are returned for repairs to be made on them for the benefit of the customer, they must be handled by the sales department, as this is either a question of sales or a question of making good some previous sale. On the other hand, if they are returned because they are rejected, it is a question of sales cancellation to be followed by instructions for disposition. In either case, one of two things must take place : either they must be repaired to be put into per- fect salable condition again through a production order for repairs for this particular item, or else they must go into stock as finished stores, the original instructions for which must emanate from the sales department. Accounting for Goods Returned Returned goods, in this instance, means something which the company has manufactured and has previously sent out, and which has been returned for some one of many different causes. The goods may be returned because they are unsatis- factory to the customer, perhaps as to quality, perhaps as to time of delivery, or for other reasons. The nature of the return from the customer will affect the accounting. If the goods are not in shape to go back into stock, certain repairs must be made so as to put them into shape in order to get them back in stock. Now, it is obvious that such repairs cannot be charged as an additional cost to the goods ; it is usually an expense due to bad sales, or bad selling policy, and in such case should be charged up as a sales expense, inasmuch as the goods, after being put into perfect 112 UNIFIED ACCOUNTING FOR INDUSTRIALS repair, must go into finished stores at the same price as other items of the same nature. Any losses due to the dis- satisfied customer will then, nine times out of ten, be a direct charge to the selling department, and not to the factory or to goods made by the factory, unless they are defective by manufacture. This same rule also applies in cases where the sales de- partment issues orders to have manufactured certain types of product, as for instance, engines, and for certain sales or credit reasons these orders are cancelled or returned, and these special types of engines have to be made over into other types. The expense of rebuilding these engines can- not be considered as an additional cost to the goods, being due to bad sales or credit policies, and must be charged up as a commercial expense. Again, goods are returned to be repaired for a customer, which, in a motorcycle department, is quite a general thing, and, as the number of machines put out grows, this work also grows rapidly in proportion. In such cases, an order must be made out to have each particular article repaired, followed by a production order for use in the factory, so that all labor and material for making the repairs will be charged up to the original item, in addition to which must be charged the prorated amount of general overhead. Other compUcations that come into this accounting are in the nature of such repairs as cannot be done in the factory itself, but must be sent out for the customer. In such cases the article may be sent back to the factory, or shipped direct by the customer to the place where it is to be repaired, for all of which, special provisions must be made, but not primarily as is often done in the cost department. CHAPTER VII PREPARATION FOR THE HANDLING OF PRODUCTION Illustrating and describing in detail the neces- sary classification of pieces, parts, and units, and their relation to stores, schedules, etc. CHAPTER VII PREPARATION FOR THE HANDUNG OF PRODUCTION General Considerations In the next few chapters the preparation necessary for handling production on a more or less scientific basis will be described in considerable detail. In no other way could the relation between works management and correct ac- counting methods and its dependency on them be shown so well. It also shows how low costs of production may be obtained and maintained. To express the whole matter briefly, the real purpose of any manufacturing concern should be to get out of invest- ment, labor, and material all that can be obtained therefrom in the shape of product. The few chapters devoted to the handling of product are brought in to show its close relation- ship to accountancy and the dependency of the one on the other for economical results. If it were not for this con- sideration, questions of shop practice would not enter into a work of this character at all. Analysis of Production Handling The work of production handling naturally resolves it- self into the following divisions and order of arrangement : 1. A standardization of the pieces, parts, units, and models to be manufactured, their relation one to another, and the materials required for each. 115 Il6 UNIFIED ACCOUNTING FOR INDUSTRIALS 2. A standardization of the operations and rotation of operation on all pieces, parts, units, models, etc. 3. The standardizing and indexing of all dies, jigs, fixtures, gages, etc., required for same. 4. A balancing and grouping of the machine tool equip- ment so as to show the pieces and operations pos- sible on each machine or group of machines. 5. The tabulating of pieces and operations that it is possible to do on each different type of machine tool. 6. The making of time studies on all of the operations of each piece, and the allotting to same of a stan- dard time for doing the work on each operation ; this time to be the basis for premium or piece- work rates and for possible plant output. 7. The scheduling of sales requirements for the season's output, and from this, scheduling the manufactur- ing requirements on a parts balance basis so as to maintain a full complement of parts and pieces required for assembling. 8. The developing and installing of a method for putting production through a factory on a parts balance schedule basis so that at all times the entire plant capacity will be under full control. Utilizing Plant Capacity One of the most impKDrtant features in efficiency work is the ascertaining, developing, and utilizing of plant capacity to its utmost. To do this there must first be a complete tabulation of all pieces, parts, and units that are to be manu- factured (with material required), and then the require- ments of production handling, as outlined above, can be carried out in detail. Having established a standard design for the pieces, PREPARATION FOR HANDLING PRODUCTION 117 parts, and units to be made, and having made an analysis of the machine tools available, all of the operations on each of these pieces must be standardized to determine with what tools and on what machines each piece of work can be done to the best advantage. Everything is then ready for making time studies on these operations and preparing for the schedule of production. When this schedule has been laid out and the whole proposition developed and standardized, then, and not until then, may the planning of production be installed on an economical basis and as it should be carried out ; thereby utilizing the entire plant capacity and meeting the predetermined manufacturing requirements as per schedules of output. One of the great problems before manufacturers today is to discover the weak places — the points at which their plants lack capacity to manufacture the volume of product required on a balanced basis. It must be understood that full plant capacity cannot be reached until its equipment is developed to the point where time studies may be made for obtaining data on ultimate capacities. Undoubtedly, there can be an approximate estimate of what the capacity will be, based on the manufacturer's machine tool rates of output, but in most lines of work such estimates have been found, in the ultimate analysis of time studies, so erroneous as to necessitate a complete change in the whole organization of the plant. It would seem that no more profitable work could be done in any plant than to establish for a while a pace-making department for all pieces and parts to be manufactured. This should be done in order to obtain machine capacity, man capacity, plant capacity, and time limits, with a rate- setting based upon these. It also enables the determination of the necessary operations with rotations of same. The compiling of data from which this information may Il8 UNIFIED ACCOUNTING ■ FOR INDUSTRIALS be obtained is most valuable work, as it shows not only the points which need building up in equipment, but also, if ad- ditional equipment is not put in, what finished or partly finished parts must be bought outside, in order to let the departments of greater capacity work up to their maximum. The condition of any plant in which this work is under- taken is usually such as to require considerable time for the compiling and analyzing of the complete data of its capacity, but when once this is done, the manufacturer will have a control of production which very few executives enjoy today. Although the executive control which this standard- ization work gives is very desirable and necessary, the prime reason for such standardization i:: to obtain a radical reduc- tion in the cos: 3 of manufacture, due first ':o the greatly in- creased efficiency of the plant from a machine point of view, and second, to the very material increase of output which can be obtained from the plant with less expenditure for labor. Production and the Sales Department In order to manufacture economically it is necessary to put the entire production of a factory on a schedule basis, by first determining what the sales requirements will be for a manufacturing year or season. It is also vi' illy essential for economical mauafacture that these schedules be made to protect manufacturing conditions. It is a common practice with many manufacturers today to run the manufacturing end of their business to suit the sales end; so much so that when special features ar.^ desired by the sales department, the factory immediately proceeds to furnish them. What is needed above all else is to develop and introduce "parts common to all" practice, and, having furnished the selling end with standard articles which the trade requires, it is up to the r^ales force to sell these articles PREPARATION FOR HANDLING PRODUCTION hq and not make the factory its tool in catering to the whims of individual customers. In most scrap piles today there are many thousands of dollars' worth of pieces and parts which have been scrapped because they were made up as special features to suit indi- vidual customers with apparent disregard of the amount to be ultimately used. As a result, when the particular cus- tomer's orders came to a stop, there was on hand a large number of these special parts which the selling department was unable to sell and which could therefore only be scrapped. In other instances, large amounts of scrap have been produced by adopting new designs for certain pieces and parts with absolute disregard of the quantity of old pieces and parts on hand at the time of their adoption. Obviously, this should be avoided. Schedule of Production While, of course, manufacturing schedules must be made out in accordance with the sales requirements as a whole and the ability of the sales department to dispose of the product, these matters must be gone over in advance and the production schedule made up in accordance and with regard to factory capacity. Then, with this schedule at the maxi- mum, all new features should be reserved for the following season's models and special features eliminated to the great- est extent possible. It is obvious that before scheduling of production can be carried out with any efficiency, it is necessary to know exactly what there is with which to turn out production, and to have proper methods laid out for performing the opera- tions required. It has been found in many cases, by actual observation, that one operation is often done in half a dozen different ways, each one more or less extravagant in the 120 UNIFIED ACCOUNTING FOR INDUSTRIALS method of handling the material and labor involved. It is, therefore, essential that there should be established standard methods for the manufacture of each article, and instruc- tions be on record as to how and in what rotation the vari- ous operations should be performed. The accuracy of the work depends largely upon its being done in the proper rota- tion. Theoretically this should not be so, but in practice a considerable amount of scrap is accumulated in many plants because of operations being put through in wrong succession. To meet this condition, the first consideration is the tabulating of articles to be made, for which there have been provided "Piece Key Cards,'' "Part Key Cards," and "Unit Key Cards" (Forms 20-22). Too much care cannot be given to this all-important starting work, for upon the cor- rectness of the information on the piece, part, and unit key cards depends the efficiency of the work of the purchas- ing department, the stores keeper, the production depart- ment, and the cost accounting department. The division of any unit into pieces or parts by operations should be done in the drafting room and shown on the drawings and bills of material going therefrom, and each piece or part of any unit to be manufactured must be given r. number to dis- tinguish it from all of the other parts and pieces. System of Numbering There are a number of short-cut methods of joining and classifying the numbers of units, pieces, and parts, keying all pieces and parts into their respective units. In most factories, however, pieces and parts are already numbered, and where drawings of these pieces and parts are correlated it would not ahvays be practicable to change the numbers, especially where repair parts have been catalogued by number. PREPARATION FOR HANDLING PRODUCTION 121 In the numbering of articles manufactured, an effort should be made to give group numbers ; for instance, pieces, from 1 to 3000 ; parts, from 3000 to 5000 ; units, from 5000 up. Sufficient provision should be made for the various sizes of standard screws, bolts, nuts, etc., and, so far as pos- sible, all special features should also be numbered in a group and filed separately from standard items so that a check can be kept on them, and so that they can be gone over frequently by the management. Any additions to these special features should be reported to the management from time to time. This is because of the danger of extending special features into too great a variety, and also because of the tendency on the part of the designing department and factory management to develop new features and apply them while the company has a large stock of designs on hand which should not be changed until the stock is exhausted. Each special feature, of course, will be a unit in itself and will be registered on a unit key card (Form 22), showing all the parts and pieces of w^hich this particular unit is composed. Provision should also be made for numbering the draw- ings and rough material for any finished part, so as to key on to the finished part. For example, on a gasoline engine the connecting rod may be No. 20, and is made from a drop forging. As the connecting rod finished is a component part, it goes into component stores as No. 20. The forg- ing for this also requires a specification, and this forging and its drawing number should be No. 20-A, the "A" sig- nifying the rough material for the finished part. However, should this connecting rod at any time be bought outside in a finished condition, it would come into general stores as No. 20, instead of No. 20-A which is its distinctive num- ber when received as a rough forging. As described in Chapter V, a unit is an assembly of 122 UNIFIED ACCOUNTING FOR INDUSTRIALS two or more pieces or parts into a thing which has a func- tioning power in itself or is in a condition for sale by itself as a complete article. Thus, a motor is a unit because it will deliver power. A transmission gear is a unit because it is a sales item. Units vary greatly in their characteristics according to the nature of the business and its sales require- ments ; that is, what would be a unit in one business might be only a part in another. A part consists of an assembly of two or more pieces, being in itself, as distinguished from a unit, devoid of any functioning power or sales possibilities (except as repairs), until connected or associated with some other parts and pieces. A piece is distinguished from a unit and a part as being inactive and inoperative ; at the same time it is individual in its character. Thus, an automobile engine would be a unit; the fan, water pump, etc., would be parts; while the fan blades, screws, bolts, crank shaft, cam shaft, etc., etc., would be pieces. A part should be such an assembly of pieces as can and will be made up and put into component stores ready to be drawn out and assembled into a complete engine with other parts and pieces. It should be noted that it is possible for large and primary units to be composed of several smaller or secondary units as well as parts and pieces. Thus, a tractor, which w^ould be a unit, would include a secondary unit, the engine, besides the various parts, such as frames, wheels, etc., and the separate pieces, such as screws, nuts, bolts, etc. Piece Key Card This card is written up for each piece, and, as will be noted in Form 20, shows the piece name and number, draw- PREPARATION FOR HANDLING PRODUCTION 123 ing- number, pattern number, the size of the lot to be put through, dimensions of the stock from which it is to be cut, kind of material used, and amount of material required for one piece or one hundred, the average weight, rough or finished, the average weight of scrap produced, and the pieces for which waste cuts can be used. It also gives the name and letter of the operation or operations, the machine and department in which the work is to be done, and a list of the parts and units using this piece. If a piece is to be used only for an assembly into parts, the number of pieces required for each part and the part number will be shown in the column "Used on Sub-Assem- bly" ; and the total number used on each unit is extended in the column, "Used on Units." For example, four of piece 1000 may be required on part 3500, and then in turn, four of part 3500 are required on unit 5000. Therefore, the card will read: "4 used on part 3500"; "16 used on unit 5000." If, however, these pieces are used exclusively in the final assembly of a unit, without previously having been assembled into a part, they will be entered in the column, "Used on Final Assembly," thus meaning that they are attached to certain pieces on the final assembly. That is, piece 1550 may be used only for the final assembly ; one will be attached to piece 1600, two to piece 1601, and three to 1602, all entered in this column; and then, in the column "Total Used on Units" will be entered, "6 used on unit 5001." It is possible that a piece may be attached to different pieces on different units, in which case the pieces to which it is attached will be bracketed, showing the unit to which they apply. It may also occur that a certain piece may be used on an assembly into a part and required also for use on the final assembly of these parts into a unit. This should then be entered on the card as follows : 124 UNIFIED ACCOUNTING FOR INDUSTRIALS "4 used on part 3000 (four parts used on the unit) ; 2 assembled to piece 50; 3 assembled to piece 65" (making a total of 21, used on unit 5002). The complete file of piece key cards must also contain for each particular complete unit manufactured a separate card for each piece bought, and these cards should be stamped "Bought" with a rubber stamp, so that the stores- keeper can immediately know that such a piece is bought in the open market and not made in the factory. In case certain pieces which are usually manufactured are occasion- ally bought, the cards for these will not be marked in this way, but they will be shown in the Stores account as "Pieces Ready for Assembling" and not as "Raw Material" with the letter "A" following. These cards are, as the name implies, used to furnish a key to the materials and operations required to produce some piece or part of any given unit, together with informa- tion as to the different units on which the piece or part may be used, and the different parts on which the pieces are required. Part Key Card This card (Form 21) furnishes a complete list of the pieces which may be drawn from stores and assembled into parts which in their turn may be used for the final assembly of a unit. It gives the part name and number, as well as drawing number, and size of lot best handled through all operations, and it shows the various unit numbers on which this part will be used, and the number of parts required on each of these units. It also contains the number and name of each of the operations of assembling. The operation should be designated by a letter instead of a figure, as opera- tions carry letters, and rotations on the operation, numbers ; PREPARATION FOR HANDLING PRODUCTION 125 and as the operation letter serves also as a key on the work- man's production ticket, the use of a figure would be confusing. The card should show the department in which each operation is done, and the piece numbers and the num- ber of pieces required. After the pieces going into the part have been ascer- tained, they should be entered on the part key card on the blank line following the name of the operation, as opera- tion "A," that is, the first line should show the operation number and name, and on the right half of the card should be entered, on the same and following lines if necessary, the pieces required in the work of this operation. Operation "B" should then be entered on the left side of the card, on the line following the entry of the last piece required for operation "A." Then will come, on the right-hand side of the card, any additional pieces required by the workman to complete operation "B," "C," "D," etc., thus giving a his- tory of all operations (which are taken from operation study card, described in Chapter VIII). Unit Key Card The unit key card (Form 22) has been provided to give a complete list of the pieces and parts required for the assembly of each unit. The unit number and name are given, as well as the drawing number of the unit, the num- ber of cards comprising the list for this unit, and the number of each card of the group. The operation number and name, and the pieces and parts required, as well as the de- partment in which each operation is performed, are entered on the card, the same as on the part key cards, thus showing a complete list of all parts and all separate pieces which are required for the final assembly of the unit. The parts should be grouped on the card and should be specified as parts, and the pieces as pieces. 126 UNIFIED ACCOUNTING FOR INDUSTRIALS Preparation and Care of Cards The piece, part, and unit key cards should be made out by the chief draftsman, and one of his assistants should be delegated to keep all sets of key cards up to date, making, under the chief draftsman's instructions, any changes that may become necessary. One set of these cards should be held in the drafting room by the chief draftsman, filed in rotation by the piece, part, or unit number. Two additional sets should be made; one for the stores clerk and one for the purchasing agent. Each of these sets should be written in different colored ink, so that one set may be readily dis- tinguished from another, and any transposition from one file to another detected. The chief draftsman should approve both the master set and the other sets as made out. None of the entries on these cards should ever La changed, or substitutions made, except by the chief draftsman or his clerk. These additional sets of cards should be filed in rotation, according to number, the same as the chief draftsman's set, but in case at any future time a numbering system of pieces and parts is introduced which will key these pieces into parts and units by the numbers given them, then these addi- tional sets of cards and an additional set for the chief drafts- man also, should be filed with the part and unit cards as guides to the piece cards. That is, a unit card will be placed in the file, and behind that, the first part card which will be required; behind this part card will be all the pieces going to make up this part; behind these will be the next part card with all the pieces going to make up this part, and so on. Behind the last of the part cards will be filed the in- dividual pieces used on assembly for this unit. In this same manner all the other unit key cards, together with their various part and piece key cards, will be put into the file. PREPARATION FOR HANDLING PRODUCTION 127 Uses to Which Key Cards Are Applied From key cards the following data are obtained in the handling of production : 1. A list of pieces and parts to be manufactured, for the information of the production department in making its study of machine capacity, operations, and time. 2. Information for the purchasing department in mak- ing up a purchase schedule for the year, showing quantities and date of delivery at intervals during the year to anticipate the requirements of the manufacturing schedule. 3. Information for the purchasing agent as to what pattern is required to be sent to the foundry for casting any specified piece or part, 4. Information to enable the stores keeper to make up his purchase requisitions for material, as regards kind, quantity, and quality, and to order in such lengths and widths as will most economically cut to the size required. 5. Information for the schedule department as to the number and name of operations required to pro- cess each specified piece, or to assemble each part and unit ; the department in which the work is to be done; and the character of the machine on which the work is to be performed, so that it can fill in the tracing tag which goes to the plant with the production order for the first operation. 6. Information for the schedule department as to the amount and kind of material required^ so that the requisition for material can be made out and sent to the department with the tracing tag and pro- duction order for the first operation. 128 UNIFIED ACCOUNTING FOR INDUSTRIALS Drawing and Tracing Card Before a bill of material can be made up and a system for handling work through the factory established, it is necessary to have a proper method of classifying the hand- ling of drawings, blue-prints, and also patterns; otherwise the piece and part key cards cannot contain the full informa- tion called for. This need is met by a "Drawing and Trac- ing Card" (Form 23), which is used in the drafting room, not only as an index to all drawings, but also as a record of all costs of making the drawings, whether in pencil or ink, as a sketch, or for final tracing. The cost of making drawings should be obtained in the same way as the cost of anything else, that is, by the use of the workman's time ticket and requisition for material. The chief draftsman should have a set of distribution ledger sheets, as described in Chapter XII, and should give an order number to each drawing or set of drawings made. He should enter this number on the distribution ledger and charge against it all of the labor and material used to com- plete the drawing, the total of which should be placed on the drawing and tracing card. In addition to this, the card will show the disposition of the drawing after it is com- pleted, that is, under what file or number in the cabinet it is kept, or what use may be made of it otherwise. On the back of the card will be entered from year to year, the value of the drawing, this constituting a perpetual inventory of the same. As soon as any drawing becomes obsolete or is cancelled, the card must have "Cancelled" written across its face, together with the date of cancellation, but the card must not, under any circumstances, be removed from the file. The drawing and tracing card can also be used for recording negatives from which photographs are made, in exactly the same way as it is used for recording drawings, PREPARATION FOR HANDLING PRODUCTION 129 but these records of negatives should be kept in a file by themselves. In making up a file for the drawing and tracing cards, it is only necessary to file them serially ; that is, to give each card a number, and file it according to that number. If the number is known, it is easy to locate the drawing by this number. In case it is different from the piece or part number, the drawing number can easily be found on the piece or part key card, so that there is no necessity for filing the drawing and tracing cards both numerically and alphabetically as is often done. It can be readily seen that the drawing and tracing cards can be easily located under such a file, whether they pertain to drawings of an individual piece or part, or to drawings of an assembly of parts, as each unit card also contains the drawing number calling for the assembly thereof. Pattern Record Card The pattern record card (Form 24) is used for making a complete record of individual patterns, showing the cost of making them, and the account to which they were charged after being made. As a general thing, patterns are an asset to a company, except where they are made for some particular customer and charged to him, or where they become a part of the work in a contract covered by some sales order number. Also, in ordering castings, making changes in designs, etc., it is necessary to have a record of the patterns used and available. Therefore, it is very necessary that correct records of patterns be made. If a new pattern, or a pattern covering a change in de- sign, is made in the factory, it will be made over a better- ment order number, the same as any other betterment item ; I30 UNIFIED ACCOUNTING FOR INDUSTRIALS while, of course, if it is made by an outside pattern maker, it goes into general stores and is issued and charged out as a plant betterment. Great care must be taken in making pattern charges, as sometimes the pattern must be charged to some production' order which is a combination of several production orders ; or again, to a repair order to cover some repair or replace- ment, instead of a betterment order for a new pattern. If, however, it is a pattern which is to be used regularly, the record must always show the capital account number to which it is charged, this information being furnished by the accounting department. Further, the pattern record card must always show the loft number, aisle number in loft, and shelf number in aisle on which the pattern is regularly kept in storage, so that, when taken out and sent to the foundry, it will always be put in its proper place on its return. In commencing a pattern record it is, of course, impos- sible to obtain all the "Pattern Data and Costs" in items as called for on the cards, the total cost only being given as taken from the inventory ; but, in every instance, the draw- ing number, flask number, flask size, and follow board should be given, so that information concerning all these items will always be immediately available. Great care should be used in writing up the pattern record at the start, if not taken from inventory, to see that all patterns owned by a company in its own plant or in other foundries are included on these cards. In filing the pattern record cards, there must be, of course, a set filed numerically, according to the number of the pattern. Separate cards should be made out for the patterns of special tools and jigs, and these are also filed by the key number, which identifies the pattern with the piece or part for which it is to be used; the patterns being numbered PREPARATION FOR HANDLING PRODUCTION 131 1, 2, 3, etc., when used on the same jig. As the jigs are numbered according to the part number requiring same, with a letter added— "A," "B," "C," etc.— the second pattern number for the second tool for part No. 1500 will be No. 1500-B2. Pattern Location Card In order to keep a record of the location of patterns when they have been taken out of the regular place of stor- age, it is necessary to provide "Pattern Location Cards" (Form 25), on which will be placed the number of the pat- tern, date on which it was sent out, and the concern to which it was sent. This card must be placed immediately back of the regular pattern record card. It can be used for a long period of time, inasmuch as it is a running record. For instance, the pattern may be sent on a certain date to a cer- tain factory, and the date and name of factory are entered on the card. When the pattern comes back, the date is put on the card, and "Pattern Loft" is marked under "Loca- tion," which means that the pattern is in its regular place of storage. When it is sent out again, the information neces- sary to locate it is placed on the same card, and so on until the last line of the card is used up, so that at a glance it may always be known where the particular pattern is located. CHAPTER VIII ANALYZING AND GROUPING MACHINE TOOL EQUIPMENT A description of the methods employed in measuring up plant capacity and in obtaining a balance on equipment and men- CHAPTER VIII ANALYZING AND GROUPING MACHINE TOOL EQUIPMENT Machine Study Card In making a study and analysis of the machinery and tools available for manufacturing a complete product, the first step is to make up a list of all the machines in the plant, group or chart them by size, capacities, and possibilities, and, after this is done, make an analysis of the pieces and parts and operations possible on these groups of machines. For this purpose the "Machine Study Card" (Form 26), has been provided. On this card is to be entered an analysis of all the machines available for manufacturing purposes. In the first place, it will be necessary to number and classify all the machines in the factory. They should be numbered from 1 up, thus avoiding duplication of numbers, but they should also have as a prefix to this number, the initial or initials of the particular kind of machine, for instance, "D. P." for drill press, "P. P." for punch press, "S. M." for screw machine, etc. The machines having been numbered and lettered in this manner, should be grouped as to kinds, capacities, sizes, equipments, etc. ; machines of the same classification which are capable of the same kind of work being put in a group, so that drill presses of one size and kind will be in one group, and those of other sizes or kinds will be in other groups by themselves. Each group of machines should be lettered in 135 136 UNIFIED ACCOUNTING FOR INDUSTRIALS addition to the initials of the machine which forms the basis of classification; thus, drill presses would be designated as "D. P. - a," "D. P. - b," "D. P. - c," etc. When giving the full description of these machines, the factory number of the machine should also be given ; but for handling pro- duction, the initial and group letter will be all that is necessary. After this grouping has been done, all the machines of each group should be put on one machine study card, and a separate card made out for each individual machine not in a group. The machine study card will show the type and numbers of the machines in the group, the make, the size, and serial numbers, as well as the horse power re- quired; also the location in the plant, by building, section, and department. The date and card number will also be shown, and later the original cost can be inserted if desired, so that in any consideration of the work which is done on any machine, reference can be made to its earning capacity as compared with the investment it represents. Machine study cards should be numbered in rotation from 1 up, so that the absence of any cards may be readily detected, as it is imperative that the set be complete when making up an analysis of plant capacity. At the top of the card will be given the number of the chart on which the machines are shown. If later it is desired to have the information appearing on the machine study cards tabulated in concise form so that the plant capacity can be read at a glance instead of requiring the study of numerous statistical cards, the machines in each department may be illustrated by a graphic chart showing their capacities, tools for same, etc. This, however, is something which can be done later just as well and therefore need not be done at this time unless it is needed at once. GROUPING MACHINE TOOL EQUIPMENT 137 As additional machinery is installed in the plant from time to time, machine study cards should be made out for it, or, if these machines are additions to a group, the data should be inserted on the cards already made out. Tool and Fixture Key Cards A set of tool key cards are as necessary for the control of production as are key cards covering the products made: first, because it is necessary to know what yield a tool or a set of tools will give per grind and per life of the tool, so that replacements can be taken care of ; second, so that the proper tools can be requisitioned from the tool cribs for each set-up and for every tool required for various opera- tions ; third and most important of all, so that a proper cut- ting edge or point may be maintained on all tools by having specifications for the amount of work each tool shall be allowed to do per grind. The condition of the cutting edge or point of tools has more to do with both quantity and quality of work than is usually realized, and both set-up men and machine adjusters should be most carefully instructed and disciplined in the maintenance of such tools in proper condition. If this is not done, quantity and especially quality of work will be greatly lowered, as what is wanted is to have the material cleanly cut, not "pushed" out of place. For this reason it is a matter of great importance that all tools shall be properly cared for. Unless grinding specifications, together with the specifi- cations for depth, width, and length of cut, are carefully carried out, bad work and a failure to meet the schedule of manufacture will occur on account of the fewer pieces made and the greater rejection of those that are made, to say nothing of the destructive effect on the tools and fixtures themselves. 138 UNIFIED ACCOUNTING FOR INDUSTRIALS Tool Key Card This card (Form 27) is designed to make a record of what a tool will do, and the condition under which it must be used, and it is highly important that all of its data be faithfully filled in. The tool is given a symbol, and, if made for any particular set-up, this must also be indicated. In addition to this, the number of the component for which the tool was designed is to be given, followed by a description of the operation, not an operation symbol. In many instances the average number of pieces that a tool will make from one grind, or as a total, will have to be estimated. Careful observation of the tool in actual use, however, will provide any corrections that may be necessary on the original estimate. Such corrections based on definite information should be made in order to standardize the exact work that the tool will do, and in making these corrections the speed, feed, and cut should also be given due consideration. Tool Set-Up Key Card In most factories, there are a certain number of opera- tions on automatic screw machines, hand screw machines, turret lathes, etc., that require a complement of several tools, and several different complements for different opera- tions. In order to register all this, the "Tool Set-Up Key Card" (Form 28) is provided. The data filled in on this card will be obtained from the tool key card (Form 27), and from the fixture and die key card (Form 29), so that when it is necessary to set up a job the tool set-up key card can be depended upon to requisition from the tool crib or tool storage everything that is required for processing the given operation. Undoubtedly, the number of pieces per grind on differ- ent tools in a set-up will vary; therefore, the time periods GROUPING MACHINE TOOL EQUIPMENT 139 that will be allowed for changing tools must be based upon the tool that has to be ground most frequently. On the tool set-up key card, under the caption "Opera- tion" must be given a description of what the operation is ; not its symbol. Fixture and Die Key Card This card (Form 29) is used in connection with the two foregoing cards, to record the necessary fixtures and dies that may be required for an operation, either in conjunction with the tool set-up, or on an independent piece for some particular operation. From the foregoing descriptions, the relation of the three tool and fixture cards can be easily understood, as well as their use. It is to be borne in mind that these cards are not purposed to be used in connection with the manufacture of tools, or for inventory purposes, but solely in connection with the use of the tools. Operation Studies In organizing the work of a production department, the operations required in producing the various pieces, parts, and units must be filled in direct on the piece, part and unit key cards (Forms 20-22) by the drafting or engineering department. When this is done, the production department should make a careful study of operation per- formances in the factory. As a result of these studies, it is frequently found that many operations, or the machines and tools employed on them, can be rearranged or combined in such a way that the work can be done more economically and rapidly. In analyzing an operation, there are two separate and distinct considerations, the one relating to the method of procedure, the other to the time required to do the work. I40 UNIFIED ACCOUNTING FOR INDUSTRIALS This necessitates a mechanical or operation study for estab- lishing standards, and a time study for establishing costs. Taking up the time study, there are two ways in which such a study may be conducted: one which treats the operation as a whole as illustrated on the "Operation Study Card" (Form 30), including the total net time required without considering the time needed for the rotations or motions made on the operation, and another method which takes up, in connection with the foregoing, the rotations of the operation and also the motions made by the operator, as shown on the "Motion Study Card" (Form 31). The practicability of either method depends altogether upon the nature of the work and the conditions under which it is done. Short runs and a constant change of work make the latter method impracticable, whereas long runs on individual pieces and operations make it not only desirable but necessary. Operation Study Card In order to determine the operating efBcIency of a plant, it is necessary to make complete studies of all operations required on pieces and parts, and for this purpose operation study cards (Form 30) are provided. These cards, and also the motion study cards discussed later in the present chapter, are intended to be used on study boards made to hold several cards, so that the man making observations can carry them conveniently from machine to machine and make his notations on them. After the operation study has been taken on the card, the information obtained is transferred to the operation key card (Form 33), which is designed for constant use in the production department in making out time tickets and routing the work through the factory. On the operation study card is given the piece number GROUPING MACHINE TOOL EQUIPMENT 141 and name, and when the card is finished and brought into the production department, it should be given a study num- ber, these numbers being given in rotation as the cards are received. In case a study is taken to supersede a former study, the study number that it supersedes is shown; and when this card is superseded by another in its turn, the number of the new card will be shown on the superseded card so that any study card will show the number of any preceding or subsequent study. One of the objects in making the study of an operation is to determine the size of the lot best handled in performing that operation, so that when the study of all the operations is completed, the size of the lot which can be put through and handled to best advantage for any operation can be known at once by reference to the study card. To illus- trate, on a job started on an automatic machine, the pieces on the first operation may be turned out at the rate of 1 ,000 a day, this being a convenient-sized lot for the automatic machine ; however, when the next operation in the machine department is reached, an average day's work on a hand screw machine may be only 200. Again, it may happen that for some of the following operations a still smaller lot would be found advantageous. To avoid delay and to enable the work to be pushed through with the proper rapidity, it would perhaps be better to put through lots from the first operation of, say, 100, instead of 1,000, as work upon such a large quantity would hold up and delay subsequent operations. In order to handle production on schedule and with a knowledge of just what is being m.ade, and to facilitate routing, costing, inspecting, etc., in the factory, these lots should be maintained in their identity from the first opera- tion until they are turned into stores as finished. There may be some occasions when it will be necessary to split a lot, 142 UNIFIED ACCOUNTING FOR INDUSTRIALS but this should be done only in a very great emergency, and, when done, each split lot should be tagged as "Part of Lot No , Production Order No " Making the Operation Study A special department may be devoted exclusively to experimental time study and rate-setting, or this may be one of the functions of the production department. In either case, when the headings of the operation study card for the piece to be studied have been made out, the person having the study in hand should begin in the department of first operation and then observe each operation in the manufacture of this piece in sequence, using one card for each operation, and making such changes in the manner in which the work is done as he finds necessary or econom- ical. He enters upon the card the operation number and the description of the operation. This description will be a general term, as "Mill," "Drill," "Turn," but in addition the rotations or steps of each operation must be given. Thus, operation "A" might be "Turn," but this turning, to be carried out to the best advantage, should be done on the lathe in a certain order or rotation, rotation 1 being "Rough Turn Outside" ; rotation 2, "Finish Outside" ; rotation 3, "Bore"; rotation 4, "Ream"; rotation 5, "Face Top"; rota- tion 6, "Finish Inside"; rotation 7, "Face Bottom"; etc. The rotation of each operation should be carefully studied and, when once decided, the workmen should follow these rotations implicitly in the order given; for if in the case above, boring and reaming were done first and the turning and finishing of the outside afterwards, it might throw the piece out of alignment and make the operation un- satisfactory. In many instances rejections have been reduced 50 to 65% by a careful study of the rotations of operations. The I GROUPING MACHINE TOOL EQUIPMENT 143 importance of a proper rotation of operations cannot be overestimated. For each operation the machine number and depart- ment number should be inserted on the operation study card; also the feed, speed, and cut of the machine best suited, as well as the fixtures and tools required, thus furnishing by operations a complete history for each piece as it goes through the factory together with its routing from machine to machine and department to department, from the first operation to the last. When the operation study on a piece is completed, the operation study card should be signed by the person taking the study and be turned in to the production department. Here the data contained on it is transferred to the operation key card (Form 33), and from this card entered on the piece key card (Form 20), thus completing the information on this latter card which is used chiefly by the planning clerk. The entry of this information does not, however, complete the data for the operation key card which is used by the planning clerk, as the time allowance, time study number, and wage rate are yet to be entered. In a great many cases it will doubtless be found that different workmen have diiYerent methods of doing the same work, and while there is a general standard for the operation, yet there is a great deal of variance from this for no good reason. It is, therefore, a first essential to standardize these operations as they are gone over. The man delegated to this work may find that changes in tools, fixtures, or speed of machine, or feed, will be desirable in increasing the output of the piece, and he should be given full authority to make such changes as seem to him advisable, after going over the matter with the workmen, foreman, and other persons interested. The result of this careful study of each piece made, fre- 144 UNIFIED ACCOUNTING FOR INDUSTRIALS quently develops material economies in operations, together with much greater general efficiency and a correspondingly- increased output. When operations have thus been standardized, a com- plete history is obtained of all work done in the factory, of all machines available for this work, and of all tools with which it may be done. Motion Study Card In order to take the detail of time required for opera- tions, a "Motion Study Card" (Form 31) is provided, and one of these cards is used for each operation on any given piece which requires scientific analysis. A motion study card should be made out in full detail in the factory from simply observing the operation, but should get its first data in the production department from the operation study card (Form 30), so that the basis of the study and the motion data shown on it will be exactly the same as the instructions to the workmen for processing the piece, for which the operation study card is the authority. The piece number and name, operation number and name, and operation study number are taken from the opera- tion study card, together with the machine number and de- partment number in which the study is made, and all this is inserted at the top of the motion study card, and the operator's number and name will be filled in after going to the department. The speed and feed, as well as the fixtures required, must be given for each operation. Then the study man will watch the operator set up the job, taking the time of same with his stop-watch, time him at least four times on each rotation, and also time him on taking down the job. The number of pieces made will then be inserted in the column following, and the average time for each piece in the next column. I GROUPING MACHINE TOOL EQUIPMENT 14" The motion study as now completed is available for several purposes : first, for the ascertaining of labor require- ments ; second, for the scheduling of labcr needed ; and third, as a basis for piece or premium work. The motion study card shown in Form 3 1 has been filled in with data taken from an actual time study. The details of this study as presented are practically self-explanatory, it being understood that all figures of time made are shown in tenths of an hour. These time studies cover all the rota- tions of one operation. In order to illustrate further the method of procedure in taking time, the motions to these operations, showing the use of both the left and right hand, are given in Form 32. This illustrates what time and motion studies mean if gone into in detail. In actual practice this data should appear on the motion study card which should be printed on both sides; one side for operation rotation data, the other for motion study. When the motion study is complete, and the results are entered on the motion study card, the card will be signed by the person taking the study and turned in to the produc- tion department. Here the time allowance will be set, with the high rate and low rate of earnings possible under it, any further remarks being entered in the last colum.n, if necessary. In setting the time allowance, consideration should be given to the fact that a motion study is usually taken under conditions of high tension; that the employee is supposed to be working at more than ordinary speed ; and that in most cases it would not be possible for a man to average this speed all day. Therefore, a time allowance should be made for a longer period than that actually observed. This, of course, will have to depend somewhat upon the nature of the work, the manner in which it is handled with regard to 146 UNIFIED ACCOUNTING FOR INDUSTRIALS tools, etc. In case the operator should be required to set up the tools on his machine, or to leave the machine to get tools or materials, the time consumed in this should not be included in the time allowance. Before leaving the subject of motion study, a word of caution should be inserted here. Detailed procedure such as that described is not adapted to every kind of business, or to every article made. Good judgment is required to know to what extent the methods suggested should be adopted in actual practice. The fine detail illustrated here should be applied only on work which is done on a large scale of duplication ; for instance, if a man and machine are put on one piece of work for days and weeks at a time, this nicety of detail would be of great value; but if it is work that changes from day to day, or has short runs, this detail is nearly always expensive rather than economical. Another caution in connection with work of this char- acter relates to the character of the labor employed. Unless there is reasonable stability among the operators, there is not much profit in educating them to the motion studies illustrated. If, for instance, in a factory operating 2,000 men, 4,000 or 5,000 men are hired annually, the educational work required to carry out the detail of time and operation studies would cost far more than the savings made. Operation Key Card This card (Form 33) will show the history of each operation as required by its captions, its data being as taken from actual observation, or as changed to correspond with the operation and motion study cards. The operation key card is for the use of the planning clerk in planning work for the factory and in making out tracing tags and work- men's production orders. He should have on his desk a complete file of these operation key cards in the order of GROUPING MACHINE TOOL EQUIPMENT j^y their piece number, and of the various operations required for each piece. It is evident, from the purpose for which these cards are used, that any changes made in the opera- tions must also be noted on this card, so that it will cor- respond with the operation study card by which the changes were authorized. Owing to defective material or for some other reason, it will, from time to time, be necessary to make an extra operation on some pieces; and in such a case, during the time this extra operation is required, a pencil notation of the extra operation should be made on the operation key card between the others, as operation "A-^/^," "B-^/^," etc. In explanation of the operation key card, it will be noted that the data as to the tools and fixtures required are taken from the tool key card and fixture key card, and that data as to the speed, feed, cuts, and lubricants are taken from the operation study card. The operation key card is thus made to contain complete information for making out time tickets and instructions to workmen not only for doing the pro- cessing work, but for the rotation work as well. Further, this card has full instructions thereon as to time allowed and the wage rate paid. Rate Memo After all time study work is done, a rate memo (Form 34) should be made out by the experimental or time study department in accordance with its findings, for each and every operation. On this slip or card appears definite in- formation as regards the conditions under which the opera- tion was tested out, and adjustments must be made on fac- tory equipment to meet the requirements as to speeds, feeds, cuts, etc., of the rate memo. The rate memo, as it comes from operation and time study work, only shows at what rate work may be done 148 UNIFIED ACCOUNTING FOR INDUSTRIALS per hour or per period of eight hours. The price for doing the work must come from the superintendent or from a wage board, and be based on the fact that piece-workers or premium workers should earn anywhere from 20% to 30% more than they would have earned on a day-work basis. If milling machine hands, for instance, are demanding $3 a day, they should be allowed to earn about $4 per day on piece-work or premium work. Therefore, the number of pieces that can be done in eight hours, divided into $4, is the approximate rate which should be set. This form is made out in quadruplicate; one copy of which is sent to the accounting department to check time and also to make the required postings from the rate memo to the rate cards. The second copy is sent to the department doing the work, as a notification to the foreman of the rate. The third copy is for the files of the superintendent con- trolling the department in which the work is done. The fourth copy (white cardboard) is kept in the reference files of the experimental or time study department. » I CHAPTER IX SCHEDULES Manufacturing' schedules, covering labor, ma- terial, and finances, and a consideration of the relation of these schedules to each other. CHAPTER IX SCHEDULES Purpose and Scope of Schedules In order to standardize production in any plant and handle it so as to give constant and full information as to manufacturing conditions and results, and at the same time yield a maximum output for the investment made, it is necessary to put all work through the factory on a schedule basis, planning it ahead and purchasing all materials accord- ingly. It is thus, and thus only, that assembling depart- ments can be assured regular and sufficient quantities of material to maintain a constant delivery of finished product. Of course, scheduling the production for a factory pre- supposes definite knowledge concerning the equipment of the various departments, together with standard data as to the various pieces, parts, and units to be made, as set forth in Chapters VII, VIII. It must, however, be understood that scheduling means much more than the mere systematic adjustment of all this to the items required for such manu- facture. It means the scheduling of material to be purchased, together with the delivery dates of same; a scheduling of the labor required, and, finally, a scheduling of the moneys required to finance these purchases of labor and material. In other words, the superintendent or works manager of the plant will make up, from the data supplied, a schedule of labor requirements showing the number of men needed based on the number of man-hours required to do the work, without regard to cost. The purchasing 151 1^2 UNIFIED ACCOUNTING FOR INDUSTRIALS agent will make up a schedule of material requirements by kind, quantity, and deliveries, irrespective of money values; while the treasurer will make up a schedule of financial requirements for labor, material, and general expenses. Manufacturing Order — Master Schedule The first consideration in arranging the systematic operation of a plant is the output of each model and unit required for each manufacturing year, together with the weekly or monthly requirements as to deliveries. Such a specification constitutes a manufacturing order and this order must necessarily be O K'd by the proper executive, usually the general manager, before it becomes effective, after which it is to be passed to the production engineer and superintendents for scheduling and manufacturing the pieces, parts, and assemblies required. This primary manufacturing order will in reality be a schedule of sales requirements; that is, it will indicate the deliveries of the factory as required by the sales department, divided into weeks, months, etc., for some definite time period (usually a year). This information can be tabulated on a schedule sheet similar to that illustrated by Form 35, which therefore becomes a "Master Schedule." These master schedule manufacturing orders should be numbered in rotation, and one made for each different model and unit required. When the production engineer receives such a manufacturing order, he should issue production schedules to show exactly what the factory must produce each week and month of the year in order that this output may be maintained. In case of changes in the manufacturing or sales policy of the company during the year, other manufacturing orders must necessarily be issued to cover these changes. It should be borne in mind, however, that not only deliveries but SCHEDULES je^ also purchases must be made in accordance with the original schedule, so that any change made in the manufacturing schedule will affect the kind and quantity of material purchased. Production Schedule The master schedule calls for the total output of each model or unit; the production schedule (Form 36) provides for the parts and pieces of the models or units called for by the master schedule. As soon as a master schedule for a completed unit or model has been issued, a separate pro- duction schedule should be made out for each part and piece required by the master schedule. The manufacturing order number appearing at the top should be that of the master schedule, and the total requirements for each and every piece and part should be shown on the production schedules. On the production schedule, the spaces marked "On Hand" and "Balance to Schedule" should be filled out only when a very excessive amount of parts and pieces is on hand, as this information is really meant for use at an inventory adjustment period. Under ordinary conditions, the stock on hand should be relied upon for repairs, etc., and does not enter into the making up of a schedule. The rate per day or week at which each piece must be manufactured should be shown on the production schedule, together with the date that the schedule begins and ends, and the number of days it has to run. In making up the schedule sheet for each piece, "Total Requirements" will be ascertained by reference to the piece, part, and unit key cards (Forms 20-22), The piece key cards should be gone over consecutively, as they will show all the units and parts for which the piece is required, and the total number of pieces needed for the units specified in the master schedule can be readily determined and shown 154 UNIFIED ACCOUNTING FOR INDUSTRIALS on the production schedule. For instance, if in September, 50 of model "Roadster" are required, 40 of model "Road Racer," 60 of model "Juvenile," and 30 of model "Jobbing" (making a total of 180 models), on all of which three of a certain piece are required, the schedule of this piece for that month would be three times 180, or 540. This opera- tion is repeated for each of the succeeding months, to cover the requirements of all the units or models using this piece. This again illustrates very clearly the desirability of the "Parts Common to All" plan of manufacturing, in which everything is done on a pieces and parts basis, all the scheduling, planning, and costing work being shaped to this end, rather than by the "Complete Unit" plan, and it need hardly be said that a system of manufacturing upon a basis of merely keeping machine equipment busy regardless of delivery requirements is wholly undesirable. To this end, the schedule of each piece should indicate the total number required for all units and models before the manufacturing orders and production schedules can be converted into production orders (Form 40). When this plan is followed, each piece will be manufactured as a standard piece to be used on different units, and conse- quently each piece can be used without regard to which particular unit has the greatest sale, provided the number of units in the aggregate is up to expectations. Therefore, it is perfectly safe to manufacture such a piece in a dull season and so give the factory a constant load factor; at the same time there is an opportunity to manufacture in quantities sufficiently large to obtain a low cost of production. One of the important considerations from a cost point of view is the number of pieces and parts called for at one time or in a given production order. With sales rapidly increasing or decreasing, it may be a difficult matter to SCHEDULES I^c^ handle the manufacture of certain pieces or parts in the quantities called for and at the same time obtain the lowest cost of production. In such cases it may be that such quantities can be bought cheaper outside in a finished condition. For instance, in the manufacture of a certain piece the total requirements for a season might be 2,000. Manu- factured in this quantity the cost of production may be greater than this piece could be bought for outside. On the other hand, if 6,000 of these pieces were manufactured at a time, the cost of production might be considerably less than they could be purchased for outside. But 6,000 would be a three years' supply and the interest on such an invest- ment would probably be greater than the saving effected. There is also the danger of obsolescence. The necessity is therefore apparent of closely watching all of these factors, particularly when pieces or parts are run in small batches from time to time, or in a small quantity made up for a whole season's requirements. While, of course, the manufacturing order shows the actual sales delivery requirements from month to month, it is not often that the pieces or parts required are manu- factured at exactly this monthly rate, as this would mean anything but a constant load in the factory. On the con- trary, a production schedule controlled by manufacturing orders should be laid out for such quantities as can be made most economically, and in some cases a year's supply might be made up at one time, but in so doing machine equipment is released during a subsequent period for the manufacture of other pieces, which, if this practice was not resorted to, might be far behind schedule, thereby holding up the complete assembly of units and models. The production schedule having been completely planned, is then ready for processing operations in the factory, but 156 UNIFIED ACCOUNTING FOR INDUSTRIALS before taking this up, the scheduHng of labor, material, and financial requirements must be considered. Purchase Order Schedule The scheduling of material requirements is just as im- portant as is the schedule of manufacturing requirements, for upon obtaining the right quantities of material at the right time all factory operations depend. The purchasing agent having been furnished with a duplicate of the production schedules by months, will obtain from his set of the piece, part, and unit key cards (Forms 20-22) the exact kinds and quantities of material required. He will then make out a schedule sheet (Form 37) for each kind of material, either by months or any other time periods in accordance with the general purchasing policy. This sheet also shows the requirements as to delivery dates and payments. When making out these schedules, the purchasing agent should go over his piece and part key cards in much the same manner as the production engineer does, and make a list from these key cards of the quantity of material re- quired each month for the number of pieces and parts shown in the manufacturing schedule. When all pieces and parts requiring any particular kind and size of material have been gone over, the total quantity is entered on the pur- chase order schedule (Form 2>7) as the total requirements for that kind of material. This is then divided into time periods, under the column headed "Schedule." The require- ments for succeeding months or periods are figured out in the same way. As soon as purchase order schedules are made out, the purchasing agent should issue his purchase orders for de- liveries of material according to his schedules. (See Form 4.) The order number, date, and quantity ordered must SCHEDULES ^cy be entered in the "Purchase Orders Issued" column of the purchase order schedule. The purchase orders should require delivery of material at the factory at least six weeks before the date required by the production schedules. This is necessary because the production schedule is for completed pieces and parts. The manufacture of pieces and parts, in most cases, should begin thirty days earlier, and beyond this some allowance must be made for delays in delivery. An addition of at least 10% should be made to the material requirements of the production schedules as an allowance for spoilage and repair parts. As soon as the purchasing agent receives a "Material Receipt and Notice" (Form 6) from the receiving clerk, he will turn to the purchase order schedule showing this material and enter the quantity thus received under the column "Received," carrying his cumulative totals forward from time to time and showing the number of days ahead or behind schedule. This enables the purchasing agent to keep a full check on all materials coming in and on material which is overdue, thus helping to bring about prompt delivery of all materials and preventing delay in the work of the facto r)^ When the purchasing agent issues purchase orders direct from the purchase order schedule without a purchase requisition, the stores clerk will enter the cjuantity ordered on his stores record (Form 9), taking this from his copy of the purchase order at the time the order is posted, just as if a purchase requisition had been issued. His record will thus show (when stores "Reserves" against production orders issued are entered) the amount of material that can be depended upon as available for further production orders for any given period. 1^8 UNIFIED ACCOUNTING FOR INDUSTRIALS Scheduling Labor The question of scheduHng labor requirements may be considered at this point. The superintendent, or works manager, having been furnished with a copy of the manu- facturing schedule of each piece and part, will be able to estimate his labor requirements, by figuring out the man- hours required to do the work. From the analysis of plant capacity (Chapter VII) it will be possible to lay out a general policy for employing help and make provisions for securing it whenever it is required. If, according to the analysis of plant capacity, it is found that the manufacturing schedule calls for more output than the machine or possible man capacity warrants, the superintendent should at once take the matter up with the purchasing agent so that he may arrange to purchase out- side such parts as cannot be made advantageously in the factory under existing conditions. Most manufacturing concerns have been in business for a considerable period of time and have in their pos- session data concerning costs and the time required for the operations on each piece and part. With a definite schedule of daily, weekly, and monthly requirements, it is by no means a difficult task to figure out from the produc- tive labor costs just what labor is required to process any given schedule; and as operations are always confined definitely to departments, the cost per department is also easily obtained. For instance, if 50 men are employed in a certain department to meet schedule requirements and the pay-roll shows that the average wage is 35 cents per hour, the hourly, daily, weekly, and monthly costs of productive labor for the entire department can be quickly figured, as well as the man-hours required to do the work. From this data the number of men required for a given amount of SCHEDULES I jg work to be done in a definite period of time can easily be determined. The amount of all non-productive labor employed in the factory is shown on the "Overhead Distribution Sheet" (Form 77^. From this can be obtained the non-productive labor costs of each department, and the number of men re- quired for non-productive work, by departments, and also for the factory in general. To aid in checking labor performance, a schedule of labor requirements may be made out, or these data may be plotted on a cross-section chart and then checked against the actual performance from week to week and month to month. Since processing requires the combination of machines and labor, the amount of labor to be employed depends upon the machine capacity available. The time that it will take to get out any schedule de- pends, of course, upon the number of men utilized. If it is desired to manufacture units or models requiring $50,000 worth of productive labor, and if the average wage is $3 per day and 100 men are employed in processing, the num- ber of days required to produce the schedule is found by dividing 50,000 by 300, or 166^. In other words, when- ever productive costs are known on any item of manufac- ture, time periods for the schedule depend upon the number of men that can be employed on the work. Hence, it is imperative to know exactly what the plant capacity is, as discussed in Chapters VII and VIII. Scheduling Financial Requirements It is the function of the treasurer to provide for the financial requirements of both labor and material. Having been furnished with copies of the master schedules and also having the production schedules for pieces and parts, he l6o UNIFIED ACCOUNTING FOR INDUSTRIALS will be able to estimate the amount of money required to pay both for labor and material for the entire year, as shown in the following illustration: Supposing that a schedule calls for 10,000 of a certain piece ; that according to the time study cards and operation key cards, the total number of man hours allowed for each of these pieces is five, and that the average wage as shown by the time study and operation cards is 24 cents an hour ; the approximate labor cost of each piece would then be $1.20, or $12,000 for the total quantity of 10,000 pieces. By going over each piece and part as specified on the production schedule, the total money required for the pro- ductive labor for the year can be easily computed ; and non- productive labor by departments, as shown on the overhead distribution sheet (Form 77^, can then be anticipated and added to these productive labor requirements. These data should be transferred to a graphic chart that will show separately the weekly and monthly pay-roll re- quirements (both productive and non-productive), and then the actual pay-roll should be checked against it from pay period to pay period. As soon as costs of all pieces and all departments have been ascertained, the amount of labor required for any schedule can be immediately determined and an absolute check kept on the factory in regard to the use of labor. A further check on factory labor as between productive and non-productive, and as between the various kinds of work done, is described in Chapter XII, "Distributions." So complete is this check, that no matter what the variation is from predetermined labor requirements, it is possible immediately to discover the department, the foreman, and the individual operator responsible for the variation, and the particular order or piece, the cost of which is affected by this variation. SCHEDULES l5j When the material deliveries have been scheduled by the purchasing agent (Form 37), their quantity, plus the price, will enable the treasurer to lay out his schedule for financing the purchase of this material according to the time periods shown. Importance of Schedules The importance of these schedules relative to labor, material, and financial requirements cannot be overesti- mated. Together with the other data of income and ex- penditure as shown in the monthly balance sheets, they will give the treasurer definite information as to financial re- quirements for long periods in advance and often enable him to secure decided advantages in placing contracts. Then, with these materials delivered according to schedule, the factory, as already stated, is in a position to manufacture on the most economical basis as regards both labor and material, and the production department can be utilized to its greatest efficiency. To sum up, the schedule method puts into a manager's hands a means for predetermining achievements — the results which can be derived by certain combinations of labor, material, equipment, and output. Then, as means have been provided for checking up these results from day to day, adjustments can be made as they are needed, either by changing the schedule rates for men to be employed, or the quantity of material required, or by an increased effort in the sales department, so as to maintain an even factory output with a corresponding uniformity in cost and conse- quent profit to the company. Graphic Charts Charts are frequently used in connection with schedules, and two of these are shown in Forms 38 and 39. Both of 1 62 UNIFIED ACCOUNTING FOR INDUSTRIALS these charts are of an entirely new type, inasmuch as they are a combination of calendar time and numerical quantities. In a chart such as Form 38, to the left of the sheet, space is provided for a vertical column of figures and, at the top, space is provided for a horizontal row of figures, while the main body of the chart is divided up vertically in calendar time by months, weeks, and days, and horizontally by work- ing time of six days to the week. Each small square repre- sents a day either vertically or horizontally, and it also represents a number corresponding to whatever figure is written in the left-hand column under units, in the same sense that it corresponds to the number at the head of the columns from 600 to 31,200 inclusive. The component schedule illustrated in Form 38 is plotted from a production schedule. The number required cumula- tively from week to week is shown by tlie numbers at the top of the sheet. The figures shown there represent the number of components or pieces that are to be processed and com- pleted within the tims periods indicated in the month, week, and day columns. On the left-hand side of the chart are shown the names and numbers of the operations that are to be performed on the component or pieces in question. The straight oblique lines indicate the schedule time periods for the complete processing of each component. In other words, between the first operation and the last opera- tion there is a uniform lime lag (including Sundays) of sixty days ; that is, it takes sixty calendar days to produce this particular component. The finishing operations shown on the chart in January cover work begun at an earlier date and the first operations on this component would be shown on the preceding chart commencing November 1. The heavy black lines are plotted against the oblique lines, and show to what extent the component in its progress is ahead or behind schedule requirements. Beneath these SCHEDULES 163 plotted lines is a line called "Component Stores," which means the same thing as "pieces and parts stores" or "semi- finished stores," whereby is shown the number of days the component stores are ahead of manufacture. Beneath the component stores line is a base line which simply means that, if this line is reached, assembling will have to be stopped as there will be nothing in component stores from which to draw. This, as shown by this chart, was actually the case in the week ending February 5. The purpose of this chart is to check up from week to week or month to month, as the case may demand, the various operations on each component, and to find out to what extent the factory is maintaining a uniform balance or flow of product. To illustrate this, the week beginning July 1 showed that there was a drop-off on operation No. 9. It is at a point like this that attention should be centered in order to move the operation up to balance. It should be noted that all operations done in the drop-forging shops are prefixed by the figure 10, thus running from 101 to 105 inclusive, as at this point the component goes into temporary storage, and is from here given to the machine shops under a new production order and lot number. The chart illustrated in Form 39 shows the actual unit requirement per week as plotted from a master schedule ; the numbers in the spaces at the top of the sheet indicating the quantities. Line A is the weekly schedule. Line B shows at a glance how many days manufacturing is ahead of this schedule. To illustrate, in week ending Jan- uary 15, the schedule was exactly two weeks, or 12 days, ahead of manufacture, while for week ending May 6, the schedule was 2 days behind. Line C shows, as per vertical numerical column, the number of complete units assembled each week, while Line D shows the total units that were good. In other words, the difference between C and D is l64 UNIFIED ACCOUNTING FOR INDUSTRIALS the amount that was thrown out for various reasons. Line E shows the percentage of good units obtained, as per the percentage column at the right-hand side of the sheet. The data represented by Hnes F and G are of interest and importance. Line F, in accordance with the column numbered on the left of the sheet, shows the number of men employed daily, while G shows the number of units output obtained per man. A comparison of these lines may bring out many interesting points. For instance, in the week ending February 26 the number of men employed was 2,900 (line F), and of the 6,000 units produced, as shown by line C, only 3,600 units were good (D). On the other hand, in the week ending November 25, 2,500 men were employed with a total production of 6,500 units, out of which 5,800 units were good. Turning to line G, it is seen that the output per man was lowest during the period April 8 to 22, and highest during the week ending August 12 and also from November 18 to 25. This chart then shows at a glance the efficiency of the labor force employed during a long period of time and will no doubt prove of value to the factory superin- tendent or manager of works. Similar charts can be plotted so as to show the schedule for labor, material, and financial requirements, and the actual performance can be checked against these. CHAPTER X CONVERTING LABOR, MATERIAL, AND EXPENSE INTO FINISHED PRODUCT A method for issuing production and other orders to a factory as a whole, and to indi- vidual workmen, together with various forms of collecting the time of employees ; also an illustrated description of planning methods and of planning or control boards. CHAPTER X CONVERTING LABOR, MATERIAL, AND EXPENSE INTO FINISHED PRODUCT Classification of Orders In the handling of production orders, it is usually neces- sary to confine the work to one method of procedure. This method is prescribed by a central planning station which directly controls all the work throughout the factory, or controls it through several sub-planning stations. In either case the method of procedure would be uniform throughout the factory, because the sub-planning stations are under the general control of the central planning station. Also the data employed on the forms to be used are identical. W'hich method of handling production orders is the better, is a question of organization and beyond the scope of the present work. The consideration here is the actual putting of work through the factory, and provision for all the detail necessary thereto. It is taken for granted that a stores system has been established in such a way as to give a perpetual inventory of all materials and supplies that the company may buy, and that this inventory is held in a controlling account. Lender these conditions, in order to authorize the delivery of material to the factory, it is absolutely necessary for costing and accounting purposes to have an order of some kind to which all material, labor, and expense can be charged, and these orders must be known and controlled by consecutive numbers. 167 l68 UNIFIED ACCOUNTING FOR INDUSTRIALS To cover all labor, material, and expense used in the operations of a factory, four different conditions must be provided for, these requiring four different kinds of orders. ( See also Chapter IV. ) 1. Production Orders. These orders relate exclusively to goods made for sale, where the exact amount of labor and material required for production can be charged. Such orders are issued to cover whatever quantity, kind, or size of unit, piece, or part it is desired to make at any particular time ; and all material drawn from stores, and the labor used for processing it, must be charged to these production orders as production costs. In addition to this, a prorated amount of overhead must be charged as described in Chapter XII, "Distributions." 2. Betterment Orders. These orders relate wholly to such plant improvements as increase the capital investment of the company. Whenever any work is to be done which will effect a plant betterment, a betterment order must be issued therefor by the proper authority, and to such order must be charged all of the material drawn from stores for use thereon, all of the direct labor employed in its execution, and a prorated amount of overhead, the same rate as applied to regular production orders. 3. Repair Orders. These are orders issued for the replacement, repair, etc., of buildings and equipment, and are designed to take care of all repair work done for, or by, various departments. To each individual repair order should be charged all of the material drawn from stores and all of the labor employed ; but repair orders do not bear any portion of the general overhead charge, as repairs in themselves constitute a portion of such charges, which in turn are distributed to production and betterment orders. 4. Prorating Orders. These orders are designed to cover productive work that is done in bulk and prorated LABOR, MATERIAL, AND EXPENSE i6g over the product made, such as painting, enameling, plating work, etc. Production Orders Production orders authorize work to be started in a factory. A production schedule (Form 36) for all the pieces and parts required having been prepared, the next step is to prepare and iscue production orders (Form 40). This form is provided in quadruplicate, each copy of a distinguishing color, as green for the original, blue for the second copy, pink for the third, and buff or yellow for the fourth. The back of this yellow card contains data taken from the tracing tag ( Form 43 ) . With a production schedule in front of him, a schedule clerk can make out a production order for each of the pieces and parts required to be made, the quantity specified on a production order being ordinarily about a twenty-five or thirty days' run. This is because it is desirable to have production orders cover such quantities as can be costed out within a month, if possible; that is, a complete produc- tion order should be finished and turned into stores within a month from the time of issuance. Of course, if a steady run is being made on these parts, it would simply mean operating from one production order on to another, and each of these orders would be finished and costed out about every thirty days, so as to leave the amount shown in "Work in Progress" or "Unfinished Production Orders" at the end of the month, as small as possible. Production orders should be numbered consecutively, and, if they are issued in supplement to some previous pro- duction order, the number of this previous order should be shown after the "Supplement Number" ; also the date of issuance and the account which is to be charged (whether component or finished stores) should be given, and, if the I^o "UNIFIED ACCOUNTING FOR INDUSTRIALS production order is issued for the filling of some particular sales order, this sales order number should be shown. Then the quantity called for, the piece or part number, the specifications, and special features cr instructions will be entered. The original copy of each production order should be kept in the production, department and filed consecutively by order number. When the order is completed, if desired, the cost for labor, material, overhead, total cost, and unit cost can be entered, and the order filed in the superin- tendent's or production engineer's office. When issued, the third or pink copy should be sent at once to the stores clerk in charge of the particular stores room from which the material for this order will be drawn. This will be his authority for issuing the material called for by the order, and he should file the same by the order number. As soon as a production order is completed, the stores clerk should forward this copy, together with his sheet showing material distribution on this order (Form 16), to the distribution department for a proper distribution of costs. The second or blue copy should be filed by order number in the distribution department, and when work on the order is completed, it should be turned over to the production department with the total labor by operations shown. The fourth or yellow copy is kept in the production department and filed by piece and part number and thus becomes a working copy for the use of this department. Tracing Tag A tracing tag form has been provided ( Form 43 ) which is to be attached to each lot of material at the time it is issued from stores and before the first operation. After once being attached to any particular lot of material, the tag must remain with it until the work on the lot it covers LABOR, MATERIAL, AND EXPENSE j^j is completed and is delivered either to component or to finished stores. The purpose and method of handling the tracing tag are as follows: When the production department is ready to issue a production order, it prepares from piece key cards (Form 20) one tracing tag for each lot of each piece covered by the production order, and, as provided for on this tag, there should be shown the piece number, quantity to be started, production order number, lot number, date to be started, and date to be finished, together with such other information relative to the departments in which the various operations are to be performed on the work as may be required. As soon as these tags are made out they should be posted to the reverse side of the fourth or yellow copy of the production order, where provision has been made under "Started" to show the lot number, date, quantity, etc., together with the cumulative quantity as the work pro- gresses. After these tags have been duly posted, they are ready to be turned over to the planning and routing clerks for the issuing of production tickets (Form 44-46) as called for by the operations on these tags. As soon as the routing clerk receives tags of this character, he will post on to them from his piece key cards, the operations required by number and name, and also enter on the tag in proper order of arrangement, department number, machine num- ber, etc., for each and every operation, going to the reverse side of the tag with the operations if necessary. As stated before, the tracing tag is to be retained with the particular lot to which it is attached through all opera- tions through which that lot goes, and it must show the O K check of an inspector for each operation, also the inspector's notation, as "Recovered from Repairs," "Re- jected for Repairs," "Rejected for Scrap," together with 172 UNIFIED ACCOUNTING FOR INDUSTRIALS the date the inspection was made as indicated by the inspector's initial or punch. When each lot is completed and received in component or finished stores, the pieces are counted by the stores- keeper and this count entered on the tag, together with the bin number in which they are placed. The tag is then dated, signed, and turned over to the stores record clerk for entry on the stores records, after which it is forwarded to the production department where the routing clerk will enter on the back of the production order the quantity finished in this particular lot. Thus, on each production order there will be a complete record of the work started and completed, this record also serving to give the routing clerk full information as to the balance of lots to be done, numbers of these lots, etc. Great care should be exercised in making out these production cards accurately, as they are the key to the proper handling of all work in the factory. Whenever work is completed, the tracing tags should be filed consecutively by production order number and lot num- ber, for future reference as to how work has been handled regarding rejections for repairs, scrap, etc. Issuing Material Requisitions After the tracing tags are made out, general stores requisitions for the material on the piece key cards must also be made out (Form 10). The requisitions should be numbered, this number being a combination of the produc- tion order number, the letter of the operation for which the material is used, and the highest lot number for which this requisition will furnish material. Thus, if a requisition is made out for material required for the first operation on production order No. 1000 for five lots, the requisition number would read "lOOO-A-5." When later five more lots are started, the requisition for these second five lots LABOR, AIATERIAL, AND EXPENSE j^^ would read "1000-A-lO," as being enough material for the completion of the tenth lot of this production order. These requisitions may then be turned over to the plan- ning clerks with the tags. Production Tickets and Daily Time Slips As a standard practice, labor is paid by any one of three methods, viz., day-work, piece-work, or premium work. No matter which of these methods is used, the issuing of instructions for doing the work, would remain unchanged, as well as the counting of the quantity done, and the record of the time consumed. However, the method employed for calculating the amount to be paid would be different in each case. The different methods of paying labor have been so well covered by excellent literature and lectures as to make unnecessary any description here. There is, however, a production ticket (Forms 44-46) for each one of these methods, each ticket being properly spaced and captioned on the time-keeping side, so as to make possible correct and rapid computations. These time tickets are in them- selves explanatory. On the instruction side, the data called for are identical for each one; therefore, in this respect a description of one is a description of all. These cards represent to a certain extent ideal arrange- ment and captioning. However, the same information could be presented in different shape and it is often neces- sary to do so when designing time tickets to be used on or by certain accounting machines and time or cost clocks. It is recommended that, wherever possible, time be kept by the unit system of tenths for which most efficient appliances have been made by the manufacturers of time-keeping and accounting machines. As soon as the routing clerks have received a tracing 174 UNIFIED ACCOUNTING FOR INDUSTRIALS tag and have entered the department numbers and machine numbers on this tag for each of the operations to be done, they should make out, from operation key cards, instructions for the manufacture of the pieces and parts called for on the tracing tag, these instructions being given on the day- work production ticket (Form 44), or the piece-w^ork pro- duction ticket (Form 45), or the premium v^ork production ticket (Form 46). The production ticket number, as will be noted on the ticket, should be a combination of the production order number, the operation letter, and the lot number, thus saving the necessity of writing these numbers on another part of the ticket. This greatly simplifies the work of keeping costs of labor. To illustrate this system of numbering, ticket No. 1500-A-l would signify that this ticket was made out to cover work on production order 1500, operation A, and lot 1. These tickets can be made out for all of the opera- tions of one lot at a time, and would be numbered 1500-A-l, 1500-B-l, 1500-C-l, 1500-D-l, etc. After tickets have been made out for each of the opera- tions of any particular lot, the same process can be gone through in making out tickets for each operation of lot No. 2, and so on for each of the lots called for by tags. The date of issue should be shown on the ticket, as well as the date the operation is to be completed according to schedule requirements. The department number and the machine character number for doing the work will also be entered, but the man's number should be left blank to be filled in by the operating department where the work is to be done. The quantity wanted, piece number, and piece name can be given and the routing shown, that is, "Moved from Department No ," and "Moved to Depart- ment No ," etc. Below this will then be given instructions for the work required, ^11 of which is to be LABOR, AlATERIAL, AND EXPENSE 175 copied from the operation key card (Form 33), or from the assembly operation key card, for all assemblies of pieces and parts. The speed and feed of the operation should also be shown, together with the jigs, dies, or special tools required. The rotation of the operation given on the production ticket should be followed exactly by the workman, as the card constitutes his instructions for doing the work, and these instructions should be made out exactly as shown on the operation key card. Each production ticket must be m.ade in duplicate; a thin, white original, with a cardboard duplicate underneath on which is made a carbon copy. The cardboard copy is used as the workman's instruction card. The original white copy is posted on the control board (Form 60) . When work is given to a workman, he will be given the duplicate cardboard production ticket showing his instructions, which will be held by him until the operation it covers is com- pleted. When the workman has completed an operation, however, this instruction card will be returned to the plan- ning board and the workman will receive a new one for some other work. W'hen the instruction card is turned in, no matter whether it be on the date of issue or some subse- quent date, it must be timed out for checking purposes and must be immediately forwarded to the accounting depart- ment. Meanwhile, the white slip remains posted on the control board (Form 60), i.e., is pasted on the envelope in the pigeonhole, and if the work called for on any particular ticket runs for more than one day, the cardboard copy will remain in the workman's box or pigeonhole, but a daily time slip (Forms 47-49) for that workman must be made out and turned into the accounting department each day. By working thus, it is possible to keep absolute control of 1^6 UNIFIED ACCOUNTING FOR INDUSTRIALS all inventories, so that on the last of the month the tickets of each and every workman will have been turned in and will be closed out into Production Orders Finished or Un- finished, as the case may be. When all of the operations on a piece have been com- pleted, as called for by the tracing tag, this will be O K'd first by the stores-keeper, who will have received the material into the stores, and then by the routing clerk, who will close it and, together with all the tickets and slips, send it to the planning department where it will be filed for future reference. This method of procedure means that the workmen will not be responsible in any way for keeping time, as he simply has an instruction card which he holds until he has com- pleted the work, when he receives another instruction card. Meantime, the planning station will do all the timing on both the instruction cards and daily time slips and turn them in to the accounting department. After an operation is completed, the production ticket and tracing tag will be turned over to the inspector, together with the pieces which have been made, and as soon as these have been inspected the inspector enters on this production ticket at the bottom the date finished and the number re- jected for repairs, rejected for scrap, and the number good, either signing this ticket or punching it with his individual punch. At the same time, he makes the same notations on the tracing tag, showing the number "Rejected for Repairs" at this operation and also those "Rejected for Scrap" ; he then enters on the line showing the next operation, the quantity "Good" which are to be forwarded for the next operation. He will then enter the date on the line above with his inspector's punch or initials and pass it on to the workman of the next operation. The production ticket is now ready for the production LABOR, MATERIAL, AND EXPENSE 177 department and should be placed in the outgoing mail boxes for the messenger's next trip. The daily production time slips (Forms 47-49) should be sent to the time-keeping department once a day; each morning all slips should be placed in the out-going mail box so that a messenger can take them to the time-keeping department, where the total time for the day as shown by the workmen's time slips, or non-productive, etc., time tickets (Forms 50-55) will be checked against his total clock time. When a workman has completed a job and returned his production ticket to be stamped "Finished," the planning clerk should, at the same time, withdraw another production ticket from his "Jobs Ahead" file for this workman to operate on, and stamp it "Started" at the time the other is stamped "Stopped," so that there will be no delay in waiting for jobs. The planning clerk in each department should have a list of the piece and part numbers and the operations that can be done on each of the machines in his department. This table should be always in front of him so that he can tell at a glance, when a workman comes for a production ticket, just what pieces and parts can be done on any work- man's machine, and, consequently, know what production tickets to take out of his "Jobs Ahead" file. Daily Defective Repairs Time Ticket Defects in articles manufactured are continually occur- ring, due either to poor workmanship or to poor materials. In some instances these defects will make necessary the scrapping of the items; in other instances they can be recovered by applying certain repairs. These repairs, how- ever, must be handled entirely separate from the regular productive work; otherwise any increase in the cost of 178 UNIFIED ACCOUNTING FOR INDUSTRIALS manufacture due to such defective material or workman- ship cannot be readily traced. In order to handle this work, a special daily defective repairs time ticket (Form 50) has been designed. Each foreman should be provided with a pad of these tickets and should use them for this work, and for nothing else, as indicated by the captions thereon. The department and the man's number should be entered, time started and stopped stamped as on regular tickets with the time clock, provision being made for two starts and stops on the same job. The amount column is left blank to be filled in by the timekeeper later. Great pains must be taken by the foreman to get the number of pieces repaired registered on this ticket, together with the piece number and the production order number from which the pieces originally came. Wherever possible, the costs for such repairs should be charged to the original production order under which the pieces were first started. Like all other time tickets, these must be turned in daily to the timekeeping department after being properly O K'd by the foreman. Daily Waiting Time Ticket This ticket (Form 51 ) is of much more importance than perhaps appears at first thought. It is, of course, necessary to have time spent in the factory checked against the "In" and "Out" clocks. It is also necessary to provide registra- tion for the time lost by workmen waiting for jobs, materials, tools, or for any other reasons. The daily w^ait- ing time ticket is to be used whenever a workman has to stop work and wait for any reason, as the time sheet (Form 73) is arranged to separate for each pay period all of this waiting time, by men and by departments. This makes possible a splendid analysis of lost time of this character LABOR, MATERIAL, AND EXPENSE j^g which can be charged directly to bad foremanship or a laxity of some kind on the part of the planning department. These tickets, after being O K'd by the foreman, must be turned in daily to the time-keeping department. Prorating Orders Thus far, consideration has been given principally to the manufacture of articles on a strictly production order basis. There are often instances, however, where it is not practicable to handle certain classes of work on a basis of production orders, owing first to the irregularity with which the work is put through a factory, and, second, to the nature of the materials used which can only be costed out on some prorating basis. It becomes necessary, therefore, to make provision for the establishment of certain prorating orders to which certain definite kinds of work are to be charged, with the understanding that these prorating orders are always for productive work only. For these, no special form need be provided, as they simply require typewritten instructions from the proper authority for their installation. As all have different numbers, they become known through use from month to month and from year to year by their constant number. Therefore, all that is necessary for collecting the charges to them is to send a copy of these numbers to the production engineer, time-keeping depart- ment, and any other department which might be affected by them. The manufacture of almost any product involves more or less work of this character. For instance, in the bicycle business, enameling is one element of this kind, also nickel- plating. Enameling should constitute one prorating order under a given number, and nickel-plating should constitute another prorating order under another number; the total l8o UNIFIED ACCOUNTING FOR INDUSTRIALS expense for each one of these should be prorated over the entire output made each month. Painting in many lines of work should be handled in the same way. Sometimes it is necessary to create prorating orders in connection with automatic machine departments, as in such work one man frequently attends several machines, and to divide up the time of each man according to the particular machine on which he may be working, is rather a difficult and unsatisfactory process. Therefore, it often proves advantageous to take all this work and charge it to a pro- rating order, while at the end of the month the expense to the total number of pieces made is prorated according to the capacity of the various machines used in making these pieces. This question of shop practice is touched upon at this point simply to illustrate the truth of the old saying, that every rule has an exception ; prorating orders are the excep- tion to standard production orders. Daily Prorating Order Time Ticket For the recording of time spent on prorating orders, a daily prorating order time ticket has been designed (Form 54), which can be issued through the regular channels of planning work or provided by the foreman of each depart- ment according to the nature of the business and the neces- sities of each case. This ticket is handled like all other tickets, by stamping time "Started" and "Stopped" on it, and filling in such information as is called for on the form. Daily Non-productive Labor Ticket There still remain for consideration certain phases of non-productive labor, i.e., labor spent on plant betterments, and labor on plant repairs. Labor on plant repairs is, of LABOR, MATERIAL, AND EXPENSE igi course, non-productive, but is in a class by itself and is handled entirely apart from any and all labor that is regarded as strictly non-productive labor such as clerks, oilers, etc. The ticket shown in Form 55 covers all non-productive work and should include all labor used in the factory not provided for by other tickets. Neither this nor any other tickets need be used for distinguishing non-productive em- ployees who are at all times doing the same class of work. By this is meant such employees as clerks, foremen, stores- keepers, oilers, window washers, etc., as the distribution of their time can be made from the "In" and "Out" time clock record. But this non-productive labor ticket should be used by all employees whose time may be divided between regular non-productive, productive, and betterment and re- pair work, such as millwrights, electricians, and ordinary productive employees who are occasionally engaged in non- productive work. These tickets are used the same as any other time tickets, by being properly stamped "Started" and "Stopped" and by having the information called for thereon filled in. Plant Betterments and Repairs In any factory there are from time to time plant better- ments, that is, betterments made by the company itself. As these betterments form an asset to the company, they are just as much productive work as are the goods made for sale, and consequently the labor and material used must be costed up in exactly the same way. In order, however, that there may be no mistake in making distributions to such work, a separate order is provided, which, inasmuch as an authorization must be granted for making each better- ment, is handled a little differently from a production order in issuing it to the factory. l82 UNIFIED ACCOUNTING FOR INDUSTRIALS Betterment Orders These betterment orders are made out in quadruplicate, and should be numbered consecutively, and dated ; in case a betterment order is issued as a supplement to a previous betterment order, the previous order number should be given after the "Supplement Number." The account to be charged, such as "Machinery and Tools," "Shop Fixtures and Fittings," etc., is to be given, and the authorization number, if any, together with the bill of material or requisi- tion number. The date to be completed should also be shown. There should be given a complete description of the work to be done, together with a general specification of the materials required. (See Form 41.) The original (green) copy of this form should be delivered to the department which is to do the work, and, when this work is finished, this copy should be sent to the chief stores clerk, who will enter his material costs on it and send it to the accounting department. The third (pink) copy is to be delivered at once to the chief stores clerk, who will deliver the material required for any better- ment, upon presentation of proper requisition. The second (blue) copy of the order must be delivered to the drafting department for any drawings or other information which may be required for the carrying out of this order. The fourth copy (manila card) will be given to the accounting department as authorization for labor charges. When the work is completed, costs will be entered on this manila card, which is then turned over to the production department for recording purposes. When work in the shape of a betterment is completed, it does not pass into component stores or sales as does a regular product made for sale, but "Work in Progress" is credited, and the various investment asset accounts are charged. If the betterment is for machinery bought and LABOR, MATERIAL, AND EXPENSE i^^ installed in the plant, all the material, the machine itself, fittings, etc., and the labor of installing it, are charged to the betterment order, and the total cost in turn is charged to the "Machinery and Tools" account. If a betterment is for additions to a building, the betterment order will be charged to "Buildings" account; thus, it is taken out of "Work in Progress" and charged as an asset and is shown in the balance sheet every month, as provided for in the controlling accounts. In order to get the monthly extensions for betterment orders, they may be entered under a separate heading, on the same sheet as is used for production orders, namely, the "Record of Production and Betterment Orders," which is described in Chapter XII. However, it is better to keep a separate monthly sheet for betterment orders, so that they will not be confused with production orders. Daily Betterment Time Ticket This form has been provided for the recording of all time spent on betterment orders. (See Form 52.) Each foreman whose workmen have occasion to do any better- ment order work is provided with these tickets in pads, and, as soon as a workman starts on any betterment work, the "Time Started" will be stamped on this ticket, and the man's number, department number, and betterment order number are also entered thereon. Under "Description of Work" will be shown the nature of the work and the depart- ment for which the zvork is done. When the workman stops on this work, the time will be stamped on the ticket. These tickets must be turned in daily to the timekeeper after being O K'd by the foreman. Plant Repairs Plant repairs are authorized and carried out in exactly l84 UNIFIED ACCOUNTING FOR INDUSTRIALS the same way as plant betterments ; that is, an authorization is obtained to do any extensive repair work and the repair order is then issued; but as all work of this nature is a general overhead expense, the material and labor used are charged to the proper account as provided for in the inven- tory classification of assets, and the total expense for work of this kind is charged to the same account at the end of the month. A repair order form has been provided for making out orders to the factory for plant repairs. These orders are made out in quadruplicate and handled in exactly the same way as are the betterment orders, described above. (See Form 42.) It is often the case that for several months few repairs will need to be made, and then in some one month a large amount of repairs may become necessary ; therefore, instead of charging up the actual repairs as they are made, reserves for depreciation have been provided for all investment assets, such reserves being figured out on the basis of the estimated life of the investment covered. These reserves are charged into the general overhead each month, thus making for uniformity of costs. Then each month, as repairs are made, they are charged against these deprecia- tion reserves. To illustrate, a machine valued at, say, $3,000 gets into such a condition as to require a complete over- hauling at an expense of, say, $500. Now, it is obvious that it would not be fair to charge all of this expense to one month's operation, as the benefits derived from such repairs will continue for a long period. Therefore, the necessity for such repairs, even to the extent of completely replacing this $3,000 machine at a given time, must be anticipated. A monthly amount for such depreciation is credited each month into a "Reserve for Depreciation" ac- count, and overheads charged. Whenever the actual repairs LABOR, MATERIAL, AND EXPENSE jgj are made, they will be charged to this reserve account, and labor and material credited accordingly. The above method of handling repairs, for which pro- vision has been made all the way through, cannot be too carefully carried out. It must not be forgotten that aside from the direct value of costs of operation, their compara- tive value is of next importance, and, unless such expenses are properly distributed, comparison of cost figures as be- tween different periods becomes practically impossible. Extraordinary expenses for one month charged to the pro- duction for that month would throw the costs out so badly as to make them useless for comparative purposes. Small Repairs There are many small repairs throughout a plant that must be made from time to time without delay and without waiting for a repair order to be made out. The foremen of the plant should be instructed to use their judgment in such cases, but under no circumstances should they be al- lowed to make such repairs without issuing the proper work- men's time tickets and material requisitions, the same as for any other work. After the work is done, a formal order can be made out and issued, and the number of the order placed on these various tickets, so that the time-keep- ing and stores departments may properly handle them and have due authority for making the necessary distributions. This is something that must be very carefully watched, as foremen are prone to do much small repair work in time that is charged up to the regular product made for sale, and if this goes on to any great extent it can readily be seen how quickly comparative costs will be thrown out. Daily Repair Time Ticket This ticket (Form 53) has been provided for the record- l86 UNIFIED ACCOUNTING FOR INDUSTRIALS ing of time spent on repair orders. It is to be made out and handled the same as the daily betterment time ticket, and must be turned in daily to the timekeeper after being O K'd by the foreman. Importance of Accuracy and Promptness A careful study and the proper and prompt performance of the routine outlined in the foregoing instructions is, of course, absolutely necessary to obtain satisfactory results. Especially is this true because these matters are related to many others and are merely part of a whole. In order to have the whole organization properly co-ordinated and the entire production of the factory worked up to the proper standard, and also to secure the data necessary for main- taining this standard, it will be necessary for each depart- ment and every individual to carry out their part of the work promptly, correctly, and to the last detail. Those in charge should realize that if they allow any department to become inefficient or to fall behind, the proper working of the whole factory is affected, the final results in the con- trolling accounts are delayed and unsatisfactory and entirely lacking in those vital functions which are the reasons for their existence. Cost of Production While all the foregoing methods have been planned with the primary object of building up plant efficiency and developing production, they have, at the same time, been so laid out as always to obtain cost of production without the necessity of separate reports and "red tape" and without the installation of a highly specialized cost department. Yet, even if the expense of obtaining these costs was ten times as high as it usually is, it would be worth the price, for, after the work has been standardized, efficiency increased, LABOR, .MATERIAL, AND EXPENSE 187 and costs reduced, it is only by a thoroughly dependable system that this general efficiency throughout the factory can be maintained. All labor costs are collected in connection with, and on the same sheet as, the data for pay-roll purposes, as outlined in Chapter XI, "Employment and Handling of Labor." The material costs are collected and worked out in conjunction with the stores-keeping records, as outlined in Chapter IV under "Stores-Keeping," and with the record of production and betterments described in Chapter XII, "Distributions" ; thus making the collection of cost records as nearly auto- matic as possible. Supplementary Tag It should be a rule that lots once started should never be split, yet emergencies will arise where an exception be- comes necessary in order to keep assembly going. When such is the case, a red supplementary tag (Form 56) should be used for the "Split-off" lot. This tag shows the piece number, production order number, etc., under which work is being done, and shows the original lot number to which the quantity covered by this tag belongs, also at what operation it was taken, the date, by whom, by what depart- ment, and the reason for splitting. The balance of the operations and routing must be transferred to this tag from the original tracing tag (Form 43), thus carrying this quantity through to completion as part of the original lot and under its number. Rejected for Scrap Tag The "Rejected for Scrap" tag (Form 57) is to be filled out and attached to all pieces and parts that are rejected for scrap ; that is, all pieces or parts that cannot be recovered by any subsequent treatment or operation. In every such l88 UNIFIED ACCOUNTING FOR INDUSTRIALS case it must be filled out in full with the data as captioned thereon. Rejected for Defective Repairs Tag Whenever rejected work comes from inspection In such shape that it can be recovered from rejection by applying certain repairs, the "Rejected for Defective Repairs" tag (Form 58) is to be used and the work is to be governed exactly by the captions on it, which, in nearly every instance, are self-explanatory. Both this tag and the tag "Rejected for Scrap" can be made to slip into a holder on tote boxes, or to be tied on material, as may be desired. Symbolical Control Chart A precise but simple method of giving instructions for handling papers and transactions in connection with any particular part of a business is very desirable. There is no clearer way to describe anything than by a chart, whether it pertains to general data covering some particular subject or subjects; whether it relates to an organization and its co-ordination or relationships, or whether it is in connec- tion with the handling of papers, transactions, etc. Graphic chronological charts which afford a very prac- tical method of presenting data, have already been illus- trated in Chapter IX (see Forms 38, 39), while in Chap- ter XII an organization chart (Form 76) is presented. There is still another type of chart which is of equal, if not greater, importance than the charts mentioned above, which can be called a symbolical chart. This, as illustrated in Form 59, shows the manner in which certain items travel from one point to another, together with any instructions they convey. This chart is presented in connection with a control board or planning system (Form 60) for handling work in which there is, as here termed, a central order sta- LABOR, MATERIAL, AND EXPENSE jgn tion, together with one sub-order station. Any additional sub-stations to be operated would, of course, be controlled from the central order station in precisely the same way. This chart (Form 59) offers a simple expression of the routine work in connection with planning for order control and clears up all of the mystery that so often seems to surround this subject. The chart can be applied to the handling of all kinds of papers in connection with orders, mail, accounting, engineering work, etc. Any concern can devise its own symbology for such a chart. The key to this need be given to but few persons, thus insuring secrecy where necessary. All manufacturing orders are for units of some kind, and these orders are broken up into production orders, ( 1 ) for pieces, and operations on pieces, and (2) for assemblies of pieces. The function of a central planning or order station should be the distribution of all orders by pieces, by operations on pieces, and by the assemblies thereof. Where the work is over a wide range of shop location, sub- order stations should be established according to geogra- phical requirements, from which the work is to be timed "In" and "Out" to the men, the idea of the sub-station being to get a quicker distribution of the work by having the timing and control close to the workmen and machines. In other words, there is one general planning or order station for the whole establishment, but in addition thereto there are sub-order stations for the purpose of timing the work "In" and "Out" and controlling its progress. These sub- order stations will only control processing operations and the inspection thereof; while the central order station will control directly, or through another sub-order station, all assembling, assembly, inspection, and tryout work. The chart given in Form 59 represents this in detail, together with a symbology which is almost self-explanatory; IQO UNIFIED ACCOUNTING FOR INDUSTRIALS in practice, the explanation of these symbols would not appear on the chart if secrecy was an object. Briefly described, the central order station, shown near the bottom of the chart, receives from the production en- gineering department, as per "A," three blue-prints; one set of tool key cards ; one set of tool set-up key cards ; one set of fixture key cards; one set of unit key cards; one set of part key cards; one set of piece key cards; one set of operation key cards, and two copies of the production order. One copy of the production order, "B," is sent to the stock room as authority for the stores keeper to supply material, and is held there permanently in the file, with which in due time are placed duplicate requisitions. One copy of the production order, "C," is filed in the central order station and is held there as "work on order" until completed, when it, together with the signed tracing tag and blue-print No. 2 is returned to the engineering department. Blue-print No. 1, usually having been cut up, is destroyed and thrown into the waste basket, while the key cards as a general thing supply data for the routing and issuing of instructions from the central order station, and are consequently on permanent file at this point, as indicated by "A-1." At the routing desk in the central order station, the order is broken up into pieces and operations on pieces, and from there routed in envelope "E" to the various sub-sta- tions where the work is to be done, each envelope containing one blue-print, "E-l"; one instruction card (which is the same as a production ticket) for each operation to be done on the piece, "E-2" ; one duplicate instruction card, "E-3" ; a requisition to the general stores for material, "E-4" ; a duplicate requisition, "E-5," and a tracing tag to be attached to the material, "E-6." This envelope is received at the control board of the sub-order station and from here the papers are distributed. LABOR, MATERIAL, AND EXPENSE 191 The original requisition for material, together with the tracing tag is sent to the stock room, as per "F," while the duplicate requisition is sent to the stock clerk of the sub- order station, "F-1"; the stores-keeper selects the material and attaches the tracing tag to it, and forwards this to the stock clerk of the sub-order station, "F-2." As soon as this is checked up by the stock clerk, and signed by him, the original requisition together with the duplicate is returned to the stock room, "F-3," and from thence the original requisition is sent to the accounting department, "F-4," and the duplicate filed in the stock room, while the rough stock Is sent directly to the workman as per "F-5." In the meantime, the workman's instruction card (pro- duction ticket), together with the blue-print, are sent to the workman who is to perform the operation, through the con- trol board and time clock as per "G," and if the work takes longer than one day, a daily time ticket is made out and sent to the accounting department as per "G-1." As soon as the workman finishes a certain piece or quantity of pieces, the work is forwarded directly to the inspector as per "F-6," and a new ticket and new instruction card, together with a blue-print are forwarded to the Inspector as per "G-2.'' When the work is completed here, the envelope containing the blue-print and instruction card is forwarded to the rout- ing desk of the central order station, as per "E-7," where the blue-print goes to the waste basket and blue-print No. 2 is drawn out and forwarded with an instruction card as per "H" to the control board, through the time clock to assembly, as per "H-1"; and thence to inspection, as per "I," and thence to a try-out as per "J." After the work is completed in "]," it is forwarded as per "K" to the central stores, checked, signed for and the tracing tag sent back, as per "I," to the central order station. From here the copy of the production order, together with the second blue- 1^2 UNIFIED ACCOUNTING FOR INDUSTRIALS print and tracing tag, which came back from stores, are put in an envelope, "E-8," and returned to the engineering department, showing that the job has been completed for each individual piece or for an assembly of pieces. In the routing of material, as can be seen by the broken line, it goes directly from the workman to the inspector, then to the assembly, then to the inspector, and then to the try-out, without physically being taken to the sub-order station or central order station, as this is in accordance with the routing of the tracing tag. In connection with the central order station, at point "N" a line is shown whereby, if work on any particular job lasts for more than one day the daily time tickets are sent directly to the accounting department in the same way as they were at "G-l" in the sub-order station. When the envelope "E" is sent to a sub-order station, it contains the instruction cards, one for each operation to be done on the piece called for; therefore, if there were ten operations it might go to ten different men before it was completed, being registered in and out at the sub-order station for each transfer; these registrations being made from the instruction card which is returned each time an operation is completed. On the outside of the envelope are printed a set of figures from 1 to 20, or more, as may be necessary, which are simply used to check up the opera- tions done. That is, each time an instruction card comes back from the workmen, the operation number it represents, or the letter covering the operation it represents, is checked off on the outside of the envelope, so that at a glance the order clerk can tell how far along any particular operation has progressed. As soon as this check is made on the out- side of the envelope, the instruction card is forwarded to the accounting department, as shown at "N-1" and "G--3." There are, of course, any number of variations that LABOR, MATERIAL, AND EXPENSE 193 could be made in the foregoing chart ; as, for instance, it might be better, even necessary, in some plants to send the tracing tags and requisition for material directly to the stock room instead of the sub-order station stock clerk, in which case the lines and the symbols covering these would be drawn accordingly. Or, again, the duplicate requisition for material might be destroyed, or might be sent to the accounting department, according to other systems that may be in use. In other words, the chart as shown is not a fixed and fast diagram for doing a certain thing, but rather an illustration of how systems and methods and routine work can be expressed in the shape of a chart, which in itself constitutes the instructions to the clerks and others employed on the various operations. Planning Board This board (Form 60) is made up of vertical units, so that it may be contracted and expanded from a minimum of 24 men to a maximum of 120 men on one set of sup- ports. Further, the entire board is not only portable, but also adjustable, as it may be arranged at any angle desired from a vertical position to a horizontal position. Each unit has pigeonholes for 12 men. At the bottom of the unit are 12 spaces for men's names and numbers, and, in connection with each space, a hook on which to hang a brass check, which represents any machine the workman may be using, as illustrated by C and D in the small drawing showing a portion of a single unit. Each pigeonhole is numbered, the number of a pigeonhole being given for each man, as shown byE. In order to know what machines are or are not being used, a machine board — entirely separate and distinct from the planning board — is used. This board is provided with hooks on which are placed brass checks for each and every 194 UNIFIED ACCOUNTING FOR INDUSTRIALS machine controlled by any one station or planning board. These checks should give not only the numbers of the machines, but also, by a symbol of some kind, its type or character. Whenever a workman is given work and a machine is assigned to him for doing the work, the brass tag repre- senting that machine is taken from the machine board and is placed on the pin under his name on the planning board, there to remain until the job is completed. In this way all brass tags hanging on the machine board will represent machines that are available for work, and the empty spaces will indicate machines which are in use. By proceeding in this way, the machine and the man are always brought together for each and every operation done, without hav- ing to post on the machine board the jobs that are on each machine, as is the case with most planning systems. Round tags can be used for machines. If it is desired to post on the machine board the man's number on his being assigned a machine, a square tag should be used. In this way information regarding the distribution of workmen and machines will always be available by looking at the control board and at the machine board, and without in any way having to make a record in writing of just how work is distributed. Also, as many men do not work on machines, but are on bench work, this fact is shown by the absence of a machine tag on the planning board. In this way is ^.ecured a complete control of all men employed. Whenever an order is made up for a piece or component, a large envelope, made to fit the pigeonhole in the control board, should be used in which to put blue-prints, material requisitions, tracing tag, and workman's instruction cards for all the operations required on the one piece. As these are needed they are distributed by sequence of operations to the workman in another envelope of the same size, and LABOR, MATERIAL, AND EXPENSE 195 a white slip containing a duplicate of the instructions given the workmen is pasted to the top of the original envelope so as to be visible in the workman's pigeonhole ; the control board thus showing at a glance the entire distribution of work that has been given out. The envelope can be used several times by pasting one white slip over another. Con- sequently, the stock of the envelope should be fairly heavy and strong, without flap, and made permanently open at the end. In case the work to be done is of such a nature that blue-prints or other bulky papers are not used, and the pigeonholes are simply wanted for instruction cards, ma- terial requisitions, tracing tags, etc., for work ahead, the pigeonholes would have to be proportioned accordingly, and in this case the white slip would simply be held on top of the pigeonhole by a small steel clip; any one of several kinds which can be purchased answering this purpose. These clips might also be used in connection with the envelope, if for any reason they should be preferred. What has been said in regard to the order control chart also holds true here, as there are many ways of designing a planning board. Form 60, as designed by the writer, has been presented here because it seems to combine to an un- usual degree certain points of adaptability, simplicity, and labor economy in its use. CHAPTER XI EMPLOYMENT AND HANDLING OF LABOR In which the handUng of labor is considered from the time of starting to stopping, to- gether with an approved method for paying labor and distributing its time. CHAPTER XI EMPLOYMENT AND HANDLING OF LABOR Organization of Employment Department It is the purpose of the present chapter to discuss the subject of labor somewhat broadly, but at the same time to give more particular attention to its relation to the account- ing and statistical work. Wherever possible, there should be an employment de- partment or bureau which is to provide labor for all branches and departments of the factory. Furthermore, the responsibility of this department should be full and complete, and it should be a general rule that no one may be employed in the factory for any purpose whatsoever except through the employment department. The employment manager should keep on file all applica- tions for employment, all references relative to employees, and maintain a directory of these employees. In many cases he will also find it necessary to compile and have avail- able information in relation to rooms, board, dwelling houses, etc. In order to handle labor systematically from its first application to its final dismissal, a card record will be found convenient. A set of cards designed for the use of the employment department is presented in Forms 61-75. A detailed discussion of these cards follows. Application for Employment Card On this card (Form 61), designed to cover all general labor in the factory, may be recorded the various necessary 199 200 UNIFIED ACCOUNTING FOR INDUSTRIALS data in regard to the applicant. The cards should be filed by trade or occupation, that is, under "Machinists," "Black- smiths," "Clerks," etc., so that, whenever a requisition for additional help is made, the applications of those capable of doing the required work may be readily located. When an employee is skilled in more than one kind of work, he should be indexed under all the occupations in which he claims to be competent, and the file number will be marked on the card, that is, the file number for reference to any letters of recommendation or correspondence that may be received in connection with an employee. Letter Application for Employment In order to provide for the higher class of employees, as for instance, high-grade office or engineering help, con- cerning which a great deal more information is required than for ordinary labor, a "Letter Application for Employ- ment" (Form 62) may be employed. This letter application is self-explanatory in its purpose and use. It is usually double- folded to a 4 X 6 inch size, and filed as it is received, under occupation indexing in an ordinary card index drawer, the same as the application card. As in the case of the employment card, the file number of any other correspondence or material relating to the particular application will be noted on the letter applica- tion. Reference Inquiry Letter This is a form of letter (Form 63) used in all ordinary cases for making inquiry of those given as references by applicants for employment. It is self-explanatory. Both this and the preceding letter form are made to double-fold to a 4 X 6 size so that, if desirable, they can be folded and filed in a card index drawer of this size. EMPLOYMENT AND HANDLING OF LABOR 201 Requisition for Help Card This card (Form 64) is for the use of all division heads and foremen in making applications for labor. The face of the card is filled out in accordance with its headings by the party making the requisition. In each instance the card is made out in duplicate, the original being sent to the employment bureau, and the duplicate to the factory super- intendent. On the back of the original requisition for help, in the columns provided for the purpose, the employment department records the names of men sent for, the date, and any comment. After men have been supplied, these cards may be temporarily filed in the employment depart- ment, under the names of the departments from which they come, as they show the authority for having hired the help so requisitioned. It should be understood, as before stated, that all labor should be selected and hired by the employment department, and that, with rare exceptions, all general labor in the factory is to be hired and initial rate adjustments made without in any way being interviewed by foremen or divi- sion heads. Exceptions to this rule may be made in the case of such labor as is employed by letter application for employment. Employee's Rate Card As soon as the labor called for by a requisition is ob- tained, the employment department should make out for each employee an employee's rate card (Form 65). The employment department will also furnish the workman with an introduction card (Form 66) for presentation to the foreman to whom he is to report for work. The foreman will take up this introduction card, sign and return it through his division head to the employment department. The employee's rate card provides for a running record 202 UNIFIED ACCOUNTING FOR INDUSTRIALS of any and all changes affecting an employee as regards wages, department, and clock number. It is sent to the factory superintendent or other division head for approval of rate and then to the accounting department for filing. In every instance a day rate must be set for each em- ployee, whether he works at piece-work or not. The reason for this is that — as is generally conceded — piece-workers should earn from 20% to 30% more on piece-work than they would on day-work; otherwise, there is no induce- ment for piece-workers to speed up. Ultimately a running chart on piece-work earnings, as compared to day-work rates, should develop information of this character. If, however, piece rates are so set that the piece-workers are running from 30% to 50% more than their day rates, piece- work rates have been wrongly set and the quantity of work that could be turned out has been misjudged. One un- fortunate result of such a mistake is that piece-workers are likely to hold back so that excessive earnings shall not call attention to the error in piece rates, and the maximum out- put from equipment is not obtained. Reductions of piece rates, when once these are estab- lished, are intensely discouraging to employees, tend to make them hold back, and have done more to bring the premium system into disrepute among them than any other thing. Because of this, piece rates should never be reduced after being once set, unless operation changes make it necessary. Day rates, however, may be changed to take effect twenty-fours hours after the employee is notified of the change. To simplify the handling of the pay-roll, all employees, including piece-workers, should be paid each pay day on a day rate basis, and be paid on the first of each month the difference between the day rate and what has been earned on a premium or piece-work basis. EMPLOYMENT AND HANDLING OF LABOR 203 The employee's rate card is to be posted from the follow- ing cards in the order given: 1. "Change in Rate Card" (Form 67), which is used by division heads to notify the accounting department of a change in rate, the reason for the same, and the party authorizing it. These cards should be kept on file in alpha- betical order in the accounting department, so that they may be referred to at any time for authority for any change and the amount in change of rate. 2. "Change of Department Card" (Form 68), which is used by division heads to notify the accounting depart- ment of transfers. This card, however, need not be kept after making entry on employee's rate card,, as no purpose is served by keeping it on file. 3. "Report of Absentees' Card" (Form 69), which is used by the timekeeping department for keeping the foremen, superintendent, and others advised as to absentees. This information on these cards or slips is posted on the back of the rate cards where a record of each individual em- ployee's absence is kept. The timekeeping department should be held strictly responsible for prompt notice of absentees to all interested persons both in the factory and in the office. It is important that a rule should be made and strictly enforced, that if it is necessary for an employee to be absent, such employee must send notice to the employment office by telephone or otherwise, of his inability to report for work, and that if an employee misses five musters without sending such notice, he will be dropped from the pay-roll and not reinstated except by re-employment in the regular way. There are two reasons for this rule: if such notice is not given, a great deal of trouble can be caused by delayed work which the employee should have done, and, again, it causes trouble in making up the pay-roll, etc. 4Q4 UNIFIED ACCOUNTING FOR LXDUSTRLALS Quitting Curd The infofinaEioai ooataioed on boch sides of dus card (Foffm 70)^ wfaOe of great impCHrtaDce to the com- pany as a whole, is of partiadar impoftance to the emploj- ment department, as enahting it to judge of the stafaifitT of die labcM- empknred and to reoonmiend anjr <±aiiges neces- saiy to cxHi c d L evils in die handling of labor. It is tfaere- loare of die ntmost in^cMrtance that die infonnatian of the q uittii i g card sfaotdd be foil and readiljr aTailalile. Not onljr is die emplo]ree's own reasoo for kaTing wanted, but ii e qu en tlj r, in additioii, the opinion of some fdlow em- ployee as to why the enipky]pee left An injector's